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Advantages and Disadvantages of implementing Enterprise Resource Planning System

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

Key organisational structures

Newell outline 5 key organisational structures:

Decentralised way of operating

Flatter organisational hierarchy

Inter-organisational networking

Cross functional teams

Globalisation of operation

Key organisational structures are

Decentralisation

Is achieved through the creation of semi-autonomous business units.  This allows each business unit to focus on a particular market niche and so respond more flexibly and adaptive to the needs of the particular niche.

Example AIB, BOI, call centres.  Irish Life, decentralize its business into Retail, Corporate Business, Irish Life Investment Management and Irish Progressive Services International, all functions are run relatively independently sharing support services such as IT and HR.

Flatter Organisational Hierarchy

Achieved through removing layers of middle managers

With fewer managers, close supervision and control are less possible, so that power is devolved down the hierarchy giving the people more autonomy in their work. This open door approach enables collaboration among different departments and resources of all levels encouraging a team atmosphere.  However the fewer layers in an organisation can mean fewer opportunities to progress and this may lead to a poor retention of staff.

Example Facebook, Google.  These companies represent a modern collaborative and creative environment, however, this can often lead to a culture where there is and expectancy of resources working late, weekends and unsociable hours.

Cross-Functional Project Teams

Rather than have each function work relatively independently and pass things to the next function in the process, people are brought together to work in cross-functional teams

The aim is to encourage a faster response rate so that lead times, for example on new product developments, are considerably reduced.  This can cause issues as resources are effectively reporting into two managers, so there can be a conflict of interests when prioritising work.

Example Harley-Davidson (example in book but most 20th or 21st-century companies adopt this approach)

Inter-Organisational Networking

Instead of attempting to integrate new required skills and competencies into the org. hierarchy, organisations are increasingly working in collaborative alliances and partnerships with other organisations or using outsourcing arrangements to service particular internal requirements

This enables organisations to be more efficient as well as the opportunity to innovate more quickly since they can use knowledge and ability that are not held internally

Example Ikea and its suppliers, apple and Belkin, McDonald’s and Toys’R’Us, Energie and Chopped

Globalisation of Business

Organisations are increasingly geographically distributed, working on a global and not on a national basis.  This is achieved through acquisitions of businesses in other countries, through partnership arrangements or through internal international growth.  This allows them to capitalise on global market opportunities and so potentially grow and profitability.

Example – Kingspan, Miscrosoft, Amazon, Google etc. Great West Lifeco recently expanded its presence in Ireland through its acquisition via its subsidiary Canada Life of Irish Life, placing it as Irelands leading pensions’ provider.

Structured Systems Analysis and Design Method

UK government’s standard method for carrying out the system analysis and design stages of an IT development project is Structured Systems Analysis and Design Method . Central Computing and Telecommunications Agency commissioned it in a bid to standardise the IT projects being developed across government departments. Structured Systems Analysis and Design Method could be described as an updated version of the waterfall model, inheriting the design and coding phases from the waterfall life-cycle. It is similar to the principles of Systems Development Life Cycle.

Structured Systems Analysis and Design Method is a structured method used mostly in the analysis and design stages of system development. It is not directly concerned with the project construction, testing and implementation of software. It is a data-driven concept which concentrates on data modelling.Before subsequent phase can begin, a definite set of activities and deliverables that must be accomplished.

Structured Systems Analysis and Design Method(SSADM) adopts the Waterfall model of systems development, where each completed phase is signed off before next phases can begin.

The main aim is to produce systems that satisfy user requirements and delivered on time. Some business benefits must be provided along with the flexibility to adapt to change is the business environment. It revolves around the use of three key modules:

  • Logical Data Modelling,
  • Data Flow Modelling
  • Entity/Event Modelling

Each of these three system models provides a different viewpoint of the same system, and each required viewpoint forms a complete model of the system being designed. The three techniques are cross-referenced against each other to make sure the completeness and accuracy of the application.

Modelling techniques are extremely useful in tackling the complexity found when attempting to analyse and understand a system. Models are also extremely useful communication tools. The data flow shows what processing is done, when, how, where and by whom.

All these captured ideas and concepts are shown to users and clients for clarification and feedback.

SSADM consists of five core modules, which are further broken down into seven stages which are in turn broken down into steps and tasks. The five core modules are

  1. Feasibility study (FS)
  2. Requirements Analysis (RA)
  3. Requirements Specification (RS)
  4. Logical System Specification (LS)
  5. Physical Design (PD)

Dynamic Systems Development Model

In mid-1990’s U.K. developed The Dynamic Systems Development Model as rapid application development (RAD) practices evolvedThe Dynamic Systems Development Model stresses on continuous user involvement in an iterative development and incremental approach,

Compared to SSADM, The Dynamic Systems Development Model is a culture change.

User stories instead of requirements are used to work out tough technical problems.

Despite the requirements changes, time for the life of project and resources are fixed. Therefore,the development of software system satisfies the business requirements on time and on the budget. D.J & I.J. Tudor (2002) assert that DSDM carries out the concept of 80/20 rules and follow the fundamental assumption of “Nothing is built perfectly the first time”.

The Dynamic Systems Development Model

consists of five phases:

  1. feasibility study
  2. business study
  3. functional model iteration
  4. system design and build iteration
  5. implementation

DSDM projects are limited by time and resources . To meet business needs,Dynamic Systems Development Model consists of nine principles:

  1. Active user involvement is imperative.
  2.  Empowered DSDM teams to make decisions.
  3. The focus is on frequent delivery of products.
  4. Fitness for business purpose is the essential criterion for acceptance of deliverables.
  5. Iterative incremental development is necessary to converge on a right business solution.
  6. All changes during development are reversible.
  7. Requirements are baselined at a high level.
  8.  Integrated Testing throughout the lifecycle.
  9. A collaborative and cooperative approach between all stakeholders are essential.

Ignoring one of The nine principles break with the frameworks philosophy and significantly increase project risks D.J & I.J. Tudor, (2002).  Many of the 9 principles are encompassed in the following characteristics :

  • Deliver quickly and often (timeboxing)
  • Joint Application Development workshops
  • Prototyping/tools
  • Timeboxing
  • Pareto Principle
  • MoSCow rule
  • Extreme Programming

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