Enterprise Resource Planning system

Advantages and Disadvantages of implementing Enterprise Resource Planning System

Posted on Posted in IT Strategy

An Enterprise Resource Planning system can be used to control all major business processes with a single software architecture in real-time.  It is composed of a set of applications that automate routine operations such as Financial Management, Stock Control, Supply Chain Management, Human Resource processes – Goal Setting, Time Recording, Payroll etc.  And it’s success relies on the premise that organisations change their workflow processes to fit with the selected ES ‘best practice’ rather than to customise the solution to fit current processes.

Advantages of Enterprise Resource Planning System

Davenport , Gattier and Goodhue state that Enterprise Resource Planning system essentially revolve around the ability to integrate business information across an organisation.  Which can potentially help to:

  • Improve efficiency and workflow by reducing costly duplication of data (admin. costs are reduced because customer data has to be input only once)
  • Improve quality by having a full record of transactions available (ideal healthcare system would enable a doctor to see a patient’s full history)
  • Provide opportunities for process innovation based on exploiting the integrated data that is made available (with customer data from sales feeding directly into marketing).

Other potential advantages of Enterprise Resource Planning System:

–        ERP enables the coordination and collaboration of data across business units.

–        Boost productivity, cut cost, make smarter decisions, manage growth and meet a competitive advantage

–        streamline business processes, proactively managing performance and providing real-time reporting for decision-making

–        Business intelligence proactively manage business process with real-time analytics, reports, alerts and KPIs, snapshot of cash flow, inventory, customer insight and profitability

–        Integrated CRM, customer data at your fingerprints, attract and retain customers, improve customer relationships and discover new revenue operations

–        Mobility- your mobile executives and employees demand access to corporate systems from their smartphones and systems, modern ERPs deliver mobility and eliminate redundant data entry

–        Collaboration – improve productivity and responsiveness with open lines of communication, connect everyone through the organisation common information supporting collaboration and accuracy through sharing documents, data, online notes, attachments, social media feeds across your company and with customers

–        Global – no longer need localised solutions for each country. Single system to meet local management needs and accurately report across locations and borders

–        Compliance – can simplify governance, risk and compliance management, can automatically enforce financial management standards and deliver audit trails and compliance reporting

–        High ROI and low TCO – deliver a high return on investment and a low TCO, advanced architecture and web interfaces save time and money by making Enterprise Resource Planning system easy to install, implement, integrate, maintain and upgrade

–        Can provide an opportunity to learn more about our customers, so that we can provide them with a better service and products more tailored to their needs

Disadvantages of Enterprise Resource Planning System:

–        Could lead to the breakdown of communications.  Once the Enterprise Resource Planning system has fully implemented the need to directly contact other departments or lines of business is dissolved.  This can lead to process or business changes not being communicated to the necessary teams.

–        No longer provides a competitive edge.  As Porter (2001) points out ES systems have become a commodity and so lose the competitive edge they once gave an organisation.

–        Costs – there are significant investment costs such as hardware, software and consultancy expenses.

–        Difficult to measure the intangible benefits.  Although there are clearly opportunities and benefits to ERP solutions in streamlining processes and reducing duplication of data, it is difficult to estimate the cost benefit of this until the system has been implemented.

–        Data cleansing may be more time-consuming than anticipated, untrained or resistant staff could result in duplication of data.

–        Modifying ‘out of the box’ systems can cause greater harm than good, can result in higher cost and more system bugs and user issues.

–        Requires continual improvement – It’s not realistic to expect a linear implementation of a large ES project, i.e. Selection-Design-Implementation-use, and most organisation make customizations before and after implementation, continual revision and improvement may be required

–        ES is a socio-technical system which relies on people changing their work practices in order to ‘do things differently’.

–        Newell and David (2006) present the following problems pertaining to Critical Success Factors:

–        Project Factors – changing team/champions over a project that takes years to implement

–        Technical Factors – initially data cleaning may take more time than anticipated due to inaccuracy of entries

–        Organisational Factors – lack of assigned resources to support organisational change, as focus goes to technical support

–        Wagner and Newell (2006) outline the challenges faced with obtaining user participation

–        Legacy thinking, difficult for users to think of the future new process when it is still at conceptual phase

–        ‘Vanilla’ implementation, if users come up with suggestions that don’t fit the vanilla option they may feel discouraged,

–        Motivation, users may not be motivated to engage in a project that is so far away from implementation.

 

Wagner and Newell (2006) conducted an ES survey that found that only 28% of organisations had fully deployed their ES.   This should not discourage the consideration of implementing an ERP solution, as 64.5% of the organisations surveyed had in fact partially implemented an ERP system.  The key learning points from other organisations failures and the key theorists referenced are to consider the human factors of the implementation.  When changing processes it is essential to engage your resources to get their commitment to the change, by involving resources in the iterative approach to the change it is possible to find valuable improvements to the solution.

 

Steps to Improve Enterprise Resource Planning System

Newell et al., 2002

  1. See the implementation of such systems as continuous process
  2. Ensure that the new system can allow users what they could do in the old legacy system with extra and value adding features
  3. Encourage effective dialogue and engagement with users
  4. See resistance as source of ideas, innovation and creativity
  5. Provide an opportunity for users to experiment with the ES system
  6. Understand the essence is information, not information technology
  7. Try and not control and plan all aspects, it will take a life of its own

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