Denhams ERP Consulting
Critical Success Factors of ERP Implementation Literature Review
Stephen Denham 9/11/2010
Table of Contents 1.
Introduction ..........................................................................................................................2
2.
Declaration of Problems .......................................................................................................2 a.
What is ERP .....................................................................................................................2
b. Critical Success Factors ......................................................................................................3 c. Reasons for Implementation ................................................................................................3 Example of ERP in action ........................................................................................................3 3.
Critical Success Factors of ERP Implementation .................................................................4 a. Top Management Support ...................................................................................................4 b. Organisational Fit and Implementation Contingencies .........................................................4 c. Team ...................................................................................................................................5 d. Business Process Management and Reengineering ............................................................5 e. Business Plan and Vision ....................................................................................................5 f. Change Management & Resistance .....................................................................................6 g. Use of Consultants ..............................................................................................................6 h. Training ...............................................................................................................................6 i. Technological Infrastructure ..................................................................................................6
4.
Time Management ...............................................................................................................7
5.
Recommendations and Conclusions ....................................................................................7 a. Recommendations for Future Research ..............................................................................7 b. Conclusions .........................................................................................................................7
6.
References ..........................................................................................................................8
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1. Introduction An Enterprise Resource Planning (ERP) system is aimed at integrating all business processes in one system. Through the centralisation and automation of these processes, huge efficiencies can be obtained. ERP promises a world of benefits, but empirical studies paint a different picture. Ninety percent of ERP projects are late or over-budget (Al-Mudimigh, 2007). The horror stories of implementation projects are well known, giving decision makers much cause for concern. This lead to a wealth of research and discussion to determine factors which are critical for a successful ERP implementation. This is a review of the literature on Critical Success Factors (CSFs) of ERP implementation. Through research of popular academic journal articles, conference papers and other literature reviews, this literature review presents a holistic perspective of what has been written to date. A large amount of readings on the subject was gathered and covered. The given bibliography represents a small about of articles which cover a broad spectrum of ideas.
2. Declaration of Problems a. What is ERP There have been many very similar definitions of ERP over the years. A 2007 article on the subject opened well with this summary of what ERP is: ‘Enterprise systems software packages seek to integrate the complete range of a business’ processes and functions in order to present a holistic view of the business from a single information and IT architecture. ES software packages have made a tremendous contribution to the world of business. They have made a wide range of businesses more efficient by providing them with much information they need.’ - (Al-Mudimigh) In recent years, it has widened its scope. Many modern ERP systems now integrate horizontally on the supply chain, conjoining businesses data with the data of suppliers and customers (AlFawaz K., 2008). The best way to explan ERP is through example. Much of the reviewed literature uses quite long-winded, definitions. Though these definitions are well thought out and complete, they are not accessible for people to understand. It is for this reason that this review offers a concrete example of ERP in real terms (See Example of ERP in action).
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Example of ERP in action A large scale stationary production company is in a competitive market. It is desperately seeking a competitive advantage. When an order is made, the sales rep has to register the order. Then it is sent on to the warehouse manager that checks the stock. If the requested product is not in stock, the warehouse manager who informs the factory manager that they need to produce more. All of the paying a invoicing must be sent on to the accounting department who follow up the order. If the company had an ERP in place, many of these processes could be automatic. The sales rep could simply check a system for stock levels, make the sale and the other processes would be ordered automatically. A large amount of the existing literature argues that ERP implementation is much more than a technological change. The majority of these articles treat these more complex social issues in formulated frameworks. Algorithms cannot be applied to such organisation cultural issues. Although they are a useful reference, they are of little help to implementation teams and directors. They often ignore the complexity of issues such as organisational resistance.
b. Critical Success Factors The idea of critical success factors (CSFs) has developed much in the last fifty years. John Rockart and Nancy Foster (1989) provided a comprehensive annotated bibliography. They took the root of CSFs back two thousand years to the writings of Aristotle who describes successful leaders who had simple goals for their organisations to follow. Put simply, critical success factors are the factors deemed crucial to achieving results.
c. Reasons for Implementation The typical developed organisation usually already has a number of systems (not strictly technical) to process the different flows of information. These may be as simple as how much an organisation is paying employees to what was the stock turnover last quarter. These are known as legacy systems. Davenport (1998) described legacy systems very well, in a wider organisational context. They are often absolutely crucial to the business process they support. However, when all of these legacy systems are added together, they bring and enormous drain on the organisations resources. Much of the literature describes ERP as a means of a competitive advantage needed in today’s more competitive market place. On the other hand, McAfee and Brynjolfssons’ study (2008) reviled that ERP, as well as other technological advances, is one of the the reasons for this heightened competition. Their empirical study showed a correlation between the surge in ERP, customer relationship management (CRM) and enterprise content management (ECM). The
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digital economy has created better business, not in the products as much as in process in which products are made, stocked, sold, invoiced etc.
3. Critical Success Factors of ERP Implementation As previously explained, when discussing CSFs in ERP implementation, it is import to understand that this is not a technical, project. It is an enterprise wide strategy. Although these CSFs are under separate headings, they are all interlinked. While one author may claim there are eleven CSFs (Bhatti, 2005), another may claim there are eight (Al-Fawaz K., 2008). The exact number is not as important, as long as all the important factors are included, even if it is not deemed large enough to warrant its own heading. For example, Bhatti (2005) cites effective communication as a CSF. This has huge overlap in a number of other CSFs. If it is stated in those interlinked CSFs, it is not necessary to repeat.
a. Top Management Support ERP implementation can require participation from the entire enterprise (Davenport, 1998). It is no surprise so that top management support is a named CSF in most of the existing literature and reviews. Bhatti’s empirical study (2005) highlighted top management’s ability to provide the large resources necessary and the leadership for organisational change. Al-Mudimigh (2007) goes one step further. He not only claims the importance of top management support, but their commitment to the project. An example is given of a successful ERP project where the board of directors took a hands-on approach in analysing the plans, to vendor selection. Al-Fawaz et al. (2008) in their review, also highlight commitment as part of this CSF. They define top managements role in the implementation process and claim it is the most important of all success factors. It includes communication, understanding, goal realisation as well as commitment.
b. Organisational Fit and Implementation Contingencies This CSF is not as much critical to implementation, but critical to whether or not to implement at all. Swan defined the issue here ‘the root of the problem is the conflict in interest between vendors of ERP and customer organisations’. As ERPs are off-the-shelf packages, they make assumptions about how business typically is run. Although they allow for specification, vendors recommend against it. The customer organisations themselves however, supported by many academics, want to decide how they do business and have the ERP fit around that (Zhang Z., 2005). ERP often necessitates at least some business process re-engineering. The big question organisations must ask themselves is, is our current process already a competitive advantage (Davenport, 1998).
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c. Team According to Bhatti (2005), the implementation team is critical. It should consist of a mix of consultants, business process managers and IT managers. Participation from top management is important but he does specify that members of the team must be empowered to make decisions. Nah and Lau gave a more comprehensive perspective. As well as discussing how the team should be multi-divisional, they highlighted how such a team should be managed and motivated (with result-orientated incentives, reasonable work load and not having other projects other then the implementation). Users should also be involved in the team (Zhang Z., 2005). This can help with adaptation, acceptance and expectation management (Al-Fawaz K., 2008).
d. Business Process Management and Reengineering Al-Mulimigh (2007) focused on business process management as a major factor. He highlighted four major CSFs, but argued that three of the four (not IT infrastructure) are under the umbrella of business process management (BPM). Figure 1 implies how these four CSFs fit into an organisational hierarchy.
Figure 1
e. Business Plan and Vision Clear goals must be defined. The reasons this is critical range from people aspects such as managing the expectations of board members and other top stakeholders (Al-Fawaz K., 2008), to project management aspects such as defining milestones, critical paths and understanding the requirements for a successful implantation (Fiona Fui-Hoon Nah, 2001). One study results showed plan and goals were third most important CSF after project management and change management. It also placed emphasis on what critical business needs the systems will address (Bhatti, 2005).
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f. Change Management & Resistance A project champion should be put in place. This person should be empowered by top management as a leader of change to ‘champion’ the project. This should be a business person able to handle the inevitable resistance and conflict of large organisational change (Al-Fawaz K., 2008) (Fiona Fui-Hoon Nah, 2001). Davenport (1998) gave a broad view of the possible effects such change can bring. One CEO used ERP implementation to bring more control and standardisation to a ‘renegade culture’. Other organisations use it to empower lower level managers and even some external stakeholders, by allowing them access to operating information. Capron and Mitchell (2010) explain the nature of resistance to change. Invested interests in old practices, culture and processes will have a big effect on those attempting to retain power.
g. Use of Consultants Bhatti (2005) cites the use of consultants, either internal or external, as a clear CSF due to the complexity of the project. He states that it must be monitored very carefully. A shared understanding of the value of new resources with third parties is critical (Laurence Capron, 2010). In a case study (Woo, 2007) of ERP implementation in China, the consultants used were internationally recognised experts, but had little understanding of the Chinese way of doing business (informal processes, interdependent organisational relationships and attitudes towards organisational change). They had many other difficulties such as language barrier. They tried to employ western ideas. In this case, those consultants were replaced. The new consultants had to change top managements previous conceptions that it was simply an IT project. Consultants must understand not only ERP, but the type of organisation they are dealing with in terms of both culture and processes.
h. Training ERP is not easy to use, even for experience IT professionals. Quality training and education, though simple and possibly obvious, is critical to a smooth transition. It, similar to user involvement, can help with collaboration and reduce resistance to the new system (Zhang Z., 2005).
i. Technological Infrastructure This is another technical CSF. Such large systems require technical infrastructure to support and maintain (Bhatti, 2005). This CSF is dependent on other CSFs. The technological infrastructure needed is determined largely by the choice of ERP vendor. The choice of vendor is determined by the organisational structure, ERP team and the resources they have (determined by top management support).
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4. Time Management There are several different views of how time management impacts the implantation phase. A swift implementation can be a good move but if it is rushed it may be disastrous (Davenport, 1998). In one of the most recent journal articles (Lluis Santamaria-Sanchez, 2010) details a novel study of what factors minimise the time to implement an ERP. It used an empirical study to find out CSFs which could be used to reduce the delays the majority of ERP projects have. Using SAP (an ERP vendor) specific consultants, implementing modules in parallel, liquidity and the number of value-chain modules (supplies, distribution production etc.) all had a positive impact on the implementation speed. It also showed the number of value-chain modules and manufacturing processes had a negative effect on the implementation time.
5. Recommendations and Conclusions a. Recommendations for Future Research The existing research typically attempts to create frameworks and formulae to ERP implementation. There appears to be a reluctance of writers to accept that due to the complexity of such situations, and the huge amount of variants, the subject matter may be simply beyond algorithms and frameworks. The CSFs are so interdisciplinary and managers would require a broad understanding of how to think critically about how these The influence and value of consultants is understudied. Considering how experience in this subject would be expected to help. This review is limited in that it only focuses on CSFs. Many of the articles highly referenced here also detail the best practice for the implementation process. Nah and Lau (2001) put their CSFs in the context of each phase of the implementation process. There is much valuable information here for managers but, unfortunately, it is outside the scope of this review.
b. Conclusions Enterprise resource planning is far from simply an IT project. The critical success factors for its implementation include people issues such as organisational resistance, change management, business process issues such as business process management and re-engineering, and technical issues such as training and technology infrastructure. There are a large amount of both qualitative and quantitative studies which prove these factors to be critical to the success of ERP implementation.
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6. References AL-FAWAZ K., A.-S. Z., ELDABI T., 2008. Critical success factors in ERP implementation: A review. European and Mediterranean Conference on Information Systems. AL-MUDIMIGH, A. S. 2007. The role and impact of business process management in enterprise systems implementation. Business Process Management Journal, 13, 866-874. ANDREW MCAFEE, E. B. 2008. Investing in the IT that makes a competitive difference. Harvard Business Review, 86, 99-107. BHATTI, T. R. 2005. Critical Success Factors for the Implementation of Enterprise Resource Planning (ERP): Empirical Validation. The Second International Conference on Innovation in Information Technology. DAVENPORT, T. H. 1998. Putting the Enterprise into the Enterprise System. Harvard Business Review, 76, 121-131. FIONA FUI-HOON NAH, J. L.-S. L. 2001. Critical factors for successful implementation fo enterprise systems. Business Process Management Journal, 7, 285-296. LAURENCE CAPRON, W. M. 2010. Finding the Right Path. Harvard Business Review, 88, 102107. LLUIS SANTAMARIA-SANCHEZ, M. N.-N., SUSANA GAGO-RODRUIGUEZ 2010. The role played by interdependences in ERP implementations: An empirical analysis of critical factors that minimize elapsed time. Information & Management, 47, 87-95. NANCY S. FORSTER, J. F. R. 1989. Critical Success Factors: An Annotated Bibliography. Center for Information Systems Research, Massachusetts Institute of Technology, Sloan WP No. 3041-89. WOO, H. S. 2007. Critical success factors for implementing ERP: the case of a Chinese electronics manufacturer. Journal of Manufacturing Technology Management, 18, 431-442. ZHANG Z., L. M., ZHANG L., HUANG X. 2005. A framework of ERP systems implementation success in China: An empirical study. Interational Jornal of Production Economics, 98, 56-80.
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