Implementation of ERP System

Facts of the Story:Located in Castle Pines, Colorado, Mountain States Entertainment Corporation (MSEC) is a private company whose major business is running movie theatre, golf course and restaurant. The company, with 150 employees, generated the annual revenue of $30 million, experiencing a consecutive increase of about 20% to 25% during the past three years.When it was a start-up company in 2008, the company initially chose QuickBooks Enterprise as their ERP solution. However, with the fast development of MSEC, the system could not satisfy the needs in a short period of time. In June 2010, a new solution was finally selected by MSEC; however, the new ERP implementation was declared a disaster in the winter 2010 (Knaster, 2011).With the increasing competition in the globalized business world, companies have to provide various kinds of products to meet customer needs. Faced with the complex daily business operations, it has been a prevailing trend for companies like MSEC, to implement an enterprise resource planning (ERP) system, which aims to foster greater performance of company. Evolved from Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII), ERP system is considered as a commercial software package which provides perfect integration of information flow that covers the whole company, namely financial and accounting information, human resource information, supply chain information and customer information (Davenport, 1998). It can replace the disparate work of each department in an organization with synchronized company-wide applications, and if it is used in an appropriated way, it helps to improve the workflow, standardize the business practices, optimize the order management and better the accuracy of inventory management (Marbert et al, 2003). It is certainly true that ERP system brings the above advantages to companys business process, however, a fact that should not be neglected is that there are a considerable number of cases that companies ERP implementation turned out to be a failure. Regarding to the implementation failure, this essay will first introduce the status quo of ERP implementation, then focuses on analysing threecritical success factors which are most essential and frequently faced by companies. Potential solutions will be provided after identification of each factor, which, may help to avoid implementation failure of ERP system.It is not surprising that some well-known companies have confronted with troubles due to unsuccessful ERP implementation: Hershey could not ship candy at Halloween; Nike lost its shoes order, and FoxMeyer failed to process its orders (Johnston, 2002). Studies have shown that there are about 40% to 60% of ERP implementations which are identified as failure (Langenwalter, 2000, cited in Wong et al, 2005). When using the definition that failure is where the implementation cannot achieve the proposed return on investment, the failure rate would surge to a range between60% and 90% (Ptak, 2000, cited in Wong et al, 2005). In searching the reasons for ERP implementation failure, three critical factors will be discussed in the following paragraphs. Culture IssueA typical case of this factor is CosmeticCo (pseudonym is used for anonymity protection), a Chinese cosmetic company located in Beijing, selected Swedens Intentia AB in 1998 for their business development. However, MOVEX, the software provided by Intentia, was not totally transferred into Chinese, making barriers to system users. Different demonstration of tables and reports was not in line with Chinese regulations, it was even terrible that some numbers and signs in the financial reports were overlapped, which were difficult to read (Xue et al, 2005).As ERP system was originated in the western world, all of the features are designed based on western practice. Therefore, culture factor seems to be extremely important if it is a non-western companythat is going to implement an ERP system designed by a western country. In this situation, language issue is the priority that needs to be considered. Is a common problem that users feel confused and do not know which item to choose when using language-translated software, as sometimes direct translation does not express the essential meaning. Therefore, it should be ensured that all the words used in the user interface are translated appropriately into the native language and fully understandable to native users. In addition, as those softwares are designed according to western accounting and financial reporting standards, it should be clear that the ERP system selectedhas the capability to generate reports that are in line with local standards and practices, as well as obey government regulations.ConsultationAfter selecting the appropriate software, it is of great importance that the consultant group gives effective and practical guidance during the implementation. It is generally believed that consultation is necessarily helpful; however, several studies have illustrated that work done by consultant groups in real world is not that satisfactory. For instance, some consultant groups failed to deliver effective training but only provide brief demonstration, someonly hold two days training program without any consultation on specific areas like project management, whereas others just gave workarounds instead of applying their professional skills to provide tailor-made guidelines (Wong et al, 2005). In response to those problems, it is suggested that project team of the company should be clear what outcomes are proposed to get afterthe consultation.Then, an effective communication network should be built between them and the consultant team, ensuring that consultants understand what is needed, what problem should be solvedfrom time to time.A successful case in Motwani et al (2005) is that a footwear company worked closely with their ERP consultants made a successful implementation, every time when facing with problem, their project managers discussed it and called consultants who could get access to the ERP system remotely and made the problem solved. Business Process Change ManagementEach company has its unique organizational structure and operational process which are not compatible with the ways provided in the selected software. It is suggested that even the most flexible ERP system has its own understanding of company strategy, organization and culture (Umble et al, 2003). Therefore, company isforced to make changes in accordance with the selected ERP system. It is mentioned in Grover (1999) that business process change (BPC) managementis regarded as a full scale management including the areas of technology, people, strategy as well as planning, structuring and evaluation of the business process. In many cases, however, change management is ignored and ERP system is only viewed as simple software and the implementation process is regarded as a technology issue (Umble et al, 2003). Parts of employees are reluctant to change due to potential threats brought by transformation. As a result, BPC management becomes a bottleneck of ERP implementation success. The strategy established by Aladwani (2001) below may helpful for difficulties in BPC management. Three phases are involved in this strategy. Facing with the ERP implementation, some employee may argue that there is no need to use the ERP system as theyhave performed well for several years without it; others may hold the opinion that their job would be threatened by this system. To deal with these, the first phase, named knowledge formulation, is to identify attitudes of individual users and influential groups in advance, more specifically: Who are the resisting group? What are their needs? What are their benefits and values? What are their interests? The next step is called strategy implementation phase, with the missionof using the information gained from previous phase to overcome employees resistance. Providing potential benefits to potential users through effective communication method is regarded as a useful way to affect the cognitive component of their attitudes. Another method is to provide detailed description of how the ERP system works, as most of the time users are reluctant to accept new system because they do not know how it works and how to use it (ibid.). In addition, it isnecessary to consider the timing of ERP system introduction. As mentioned in Williams (1982) (cited in Aladwani, 2001), introduce a new product in the wrong time would trigger a disaster for the organization. Hence, top management of the organization could not start their system implementation until a mass proportion of employees have acknowledged the benefits of it. Lastly, commitment from top management can also accelerate the implementation process. Top management commitment plays a major role in ERP implementation process, this factor was ranked at the first place among all facilitators of radical transformation because of their strategic vision for organizations long-term success (Jarrar et al, 2000 and Aladwani, 2001). The last phase, status evaluation, is mainly concerned about monitoring the outcomes of change management strategy and taking action based on feedback information. Negative feedback means strong resistance still exit in the workforce, where management team may t