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Analysis of Critical Success Factors in Enterprise Resource Planning (ERP)

Pimsuda Prathankiat

Introduction

ERP stands for Enterprise Resource Planning. ERP is an integration of business management practices and modern technology. ERP is the tool to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs. [1] The typical of ERP system can combine inventory data with human resource, finance, and sales data. This capacity enables the business to manage human resource, manage supply chain, price product, produce financial statement and control financial resource effectively. [2]ERP also enables management a better overview of all of the company’s operation and management’s activities. The examples of ERP software are SAP and People Soft. ERP system is unite and link together multiple processes and parts of the business. The system also centralizes the data in one place, which can eliminate the problem synchronizing changes between multiple systems.
Due to complexity and high investment, time consuming of moving process to ERP system, most of the firms purchase ERP software, instead of developing. Many businesses reluctant to choose suitable ERP to their need and the result of implementation ERP is not always successful. Many firms have installed ERP system but abandon their implementation later. [3] The study of critical success factors helps firms to have better analysis and avoid the pitfalls. Also, organizations must pursue and evaluate the performance of ERP project by using solid parameters and indicator to measure the success of ERP project.

Analysis Critical Success Factors in ERP implementation

ERP success refers to the utilization of the system to enhance organizational goals. The critical success factors from this report have been studied from many different perspectives, such as social enabler, strategic factors, selection of software and etc., In order to succeed in ERP project, business or organization should consider these success factors before implement ERP. The study of CSFs implementation can help organization to identify practical activities that are important to ERP implementation, contribute to decreasing the uncertainties related to ERP implementation, and help all project actors to better control the various areas of expertise required. The process of identifying CSFs helps to ensure that those factors receive the necessary attention and these directly affect to the success of ERP projects. [4]

Change management and organization culture

This factor is about the need for the implementation team to a change management program. [4] Building user acceptance and a positive employee attitude are very important to this concept. One of the important parts in change management is training. Change management should start as soon as possible and should start to get support at mid-level managers. The actions/practices supporting change management are: 1) Make sure that executive management support the ERP project. 2) Assess the organization’s capacity to accept the change. 3) Provide training throughout the organization. 4) Communicate the benefits of changes. 5) Form the mitigate plan. 6) Reduce the resistance at the beginning of change. 7) Motivate employee throughout the project. 8) Train project leader to handle with change management problems. [5]----[Top]

2. Business process reengineering (BPR) and customization

Business Process Reengineering is fundamental steps undertaken prior to ERP implementation. BPR take a major role in analyst and suggestion the structural changes. Also, feasibility study is one part of the BPR. It is very important process because it helps in knowing how the organization should be customized in order to implement EPR. [6] One of the results of BPR is to complete description of how the business will operate after implement ERP package. In order to practice the BPR, the business must review the business processes by using appropriate tools. Processes and activities have to be aligned with new system. BPR activities must put in the plan. Business should keep in mind that the best way to manage change is to adopt it. The examples of action that should include in this factor are 1) Inform the limited of BPR. 2) Record specific reengineering activities in the plan. 3) Minimize the customization of the application. [5]
Customization is an integral part of ERP implementation. The goal of customization in ERP implementation is to ensure that the companies’ requirements match with ERP solution. Deciding the degree of customization for an ERP system is an important decision. The companies might need help from consultants since this process require a strong working knowledge of ERP system. Customization relates to both ERP’s success and achieving user satisfaction. Therefore, customization in ERP affects directly to ERP’s success. [7] ERP often requires extensive customization but customization of the system should be avoided or should be kept at the minimum level because customization associates with a longer time and higher cost of implementation. According to Kumar, he mention that the customization should less than 30% [8] ----[Top]

3. ERP team composition, skill and compensation

This factor is about the combination of member and skill in ERP team. The actions/practitioners that organization should practices are 1) Ensure that in the ERP team includes people both business and technical knowledge. The selection of the implementation, vendors and consultant is important to the project. 2) Ensure that team leader posses the authority that is recognized throughout the organization. Also, team leader needs to have adequate decision making power. 3) Encourage member to get involved in the project. 4) Team should be balance and cross functional. The representative should include both internal staff and consultant. [5]

4. Project management

Effective project management is important to the success of ERP implementation. This concept refers to the ongoing management of the implementation plan. [4] Project management includes defining the requirement of the project, planning stages, assigning the responsibilities to various members, and training and determining the measure of success. The actions that favor project management are 1) The scope of ERP implementation project should be clearly defined. The delivery date and milestone should be clearly stated and realistic. 2) Prepare the material, people and financial resource available to the project. 3) Because many parties involved in ERP project, it is need to coordinate project activities across all parties. 4) Assess project manager’s competency Confirm the scope such as, timeline, risk and resource with a project’s manager. 5) Continuous monitor is needed for project management to ensure that the project is in the scope 6) Plan risk management process. [5]----[Top]

5. End-user involvement

Many company neglects to involve end-users’ requirement and eventually lead to the failure of the project. End-user must be involved in the project at the beginning of the project until the end. This involvement ensures that the system respond to user’s need, easy to use and less resistance. The ERP package that is selected must support the organization’s business process. Also, it must meet the information and functional needs of the organization. [9] The actions that favor end-user involvement are 1) Provide training program that enable users’ knowledge and their needs. 2) Investigate and collect users’ requirement. 3) Identify way or plan approach of getting user involvement during the development process. [5]----[Top]

6. Knowledge management and consultant selection

It refers to exchange of information within the team and the organization. The actions that support knowledge management are 1) Build channel and climate to exchange the information within the company. 2) Encourage as many people as possible trained to the new system by the consultants. Inadequate training causes failure in ERP implementation. 3) Create support programs with the consulting firms. [5] Because ERP project implementation is costly and time-consuming, many companies seek helps from consultants. ERP consultants transfer the knowledge and business practices in an ERP packages into the customers. Good consultant should show five roles which are

Expert: this role refers to the ability to provide knowledge and skill. A consultant can provide useful knowledge and skill to his/her customer.
Manager: this role refers to the ability to manage and control the project.
Researcher: this role refers to the ability to obtain, analyze and interpret objective data in scientific manner.
Counselor: the consultant requires formal method and knowledge to client in learning process.
Politician: this role refers to the ability to politically sophisticated and active in order to be success in management consulting projects. [10]----[Top]

7. Software selection

There is a strong relationship between ERP success and software selection. It is very important to choose right ERP software. [11] Businesses need to start with defining the processes within the organization and determine function that is critical to the operation. It is important to keep in mind that the system must match with the system process. The organization should think of core business function. For example, if the business is manufacturer, manufacturing is the core business function. Therefore, business should focus on the package that is designed specifically for manufacturers and specific type of manufacturing. In other word, business need to choose one that meets the specific requirements completely. Also, the requirements of companies can change. Organization should choose software that is able to meet the present and potential future requirements. [12]----[Top]

Top four mistakes in software selection process

Not knowing what the company really need in ERP software: the issues that companies should consider before selecting ERP software are 1) the companies should determine what they really for their own business, they must think of core business function and focus on the package that is designed specifically for and met the specific requirements completely. 2) It will often depend on the problems that the businesses are trying to solve. 3) The size and structure of the company. For example, small to mid size companies who have limited resource and budget might consider a fully integrates ERP software system. This type of system allows organizations to streamline processes and achieve improved productivity at a lower cost and with fewer resources.

Not recognizing the uniqueness of business: each industry has unique characteristics and needs. Companies must to choose software that enhance the business, not limit the capabilities. First of all, companies need to define the core businesses and business requirements. The software the businesses choose should fit to the industry and tailor for the businesses. By choosing ERP software solutions that is specialized for businesses’ industry, companies will be able to get a specific targeted solution to meet unique business needs. The right solution will improve efficiency, reduce costs, and enhanced profitability.

Not choosing the right vendor: one of the most common mistakes in software selection is choosing an ERP software vendor who doesn't know your business. It is unnecessary to choose the big vendor but it is better to pick the partner who already known and understand buyer’s industry. By choosing a partner who has in-depth understanded buyer’s industry and known where your industry's future is headed will help the company achieve more rapid deployment, be more cost effective, and be more efficient with the use of your ERP software solution.

Not giving ERP software implementation the attention it needs
This mistake falls into 1) Lack of attention from project manager, the majority of successful implementations occurs when the customer's Project Manager dedicates 80-90% of their time to the implementation project. The role of the Project Manager is to streamline the process and keep things in check. 2) not documenting business process flows when implementation is complete. Documenting the process helps company in situation that an employee leaves or changes position. 3) Inadequate training program. Employees should continue to receive training after the software has been implemented. 4) Proper and thorough testing is another common oversight when implementing ERP software. It is necessary to perform test all of businesses’ data, procedure and process where users from each department of your organization do their job using real data. Testing allow business to identify any errors or misunderstanding in the process flows before it launch. [13]

8. Data accurate and integrity

The availability and accuracy of system’s data is very important to the success of ERP project. The business must make a right decision in loading useful data to the system since problem with data causes serious delay in the project. [4]----[Top]

Other critical successful factors that business should consider

9. Top management commitment and support

This concept refers to the need to have commitment from leadership at the top level and the need for senior management who would be involved in the strategic planning and technically oriented. [4] Top management should be willing to allocate the enough resource such as money and time to the ERP project. The examples of action presented for the top management support factor are 1) Identify selected top management member. 2) Inform selected members of top management about the detail of the project’s processes and project’s impact on the company. 3) Set up management committee. 4) Plant for meeting management ex. monthly meeting. 5) Include top management in the decision-making process and/or project follow-up activities [5].

10. Business plan, vision and mission

The business must have clear visions and business plan for ERP project. It is very important to identify goal before implement ERP project. Business plan reflect a long term vision. Clear vision and mission provide the guideline for ERP implementation. [10] The vision and mission must specific target, goal and clear measurement. The business plan must include benefit, costs, risks and a timeline. [14] Those information need to be well understood and clear. Provide a clear link between the business goals and IS strategy. More important, goal should be measureable. [4] The examples action that support business plan, vision and mission are 1) Identify and formally communicate the link between the ERP and the company’s strategy. 2) Throughout the project, re-evaluate the achievement of goal. 3) Get the consensus from management team relating to the goal of the implementation. 4) Define ERP implementation as the company’s most important project. [5]

11. Effective Communication

Effective communication must start with communication plan. Expectation and goals must be communicated effectively throughout the organization. It is essential for stakeholder to know and understand the capabilities and limitations of the ERP system. The actions that support effective communication are 1) Create the communication plan at the beginning of the project. 2) The language that has been used to communicate be understandable for all members. 3) Centralize information for a common understanding of decisions. [5]----[Top]

ERP Performance Evaluation and measurement

ERP performance evaluation is an important step that helps a company analyzing the contribution of ERP. ERP evaluation refers to the systematic procedures followed to estimate the performance of ERP in a company. This is not a one step process and it should be a part of the organizational study and as well as be done from time to time [5]. The evaluation helps organization to analyze the contribution of ERP to its business. The study of ERP performance evaluation helps firms to avoid pitfalls on ERP implementation. [15]In order to evaluate the ERP performance, the businesses must deicide and stick on to one particular method. [16]The assessment should set up within the time gap of three, six and twelve months. The frequency of assessment depends on many factors like the volume of business, ability to adapt to change and the characteristics features of the software that is in use. [17]
The evaluation of ERP requires deep understanding of the major impact ERP has on the business strategy, the organizational structure and role of people in the organization throughout the project. [18]
Due to the complexity of ERP and the intangible of ERP implementation, the evaluation must be both quantitative and qualitative. According to the research of Chen and Wang, they mentioned about indicators of each area which are

Qualitative indicators include

Human resources include personnel quality and management quality. The personnel quality is the knowledge level, professional standards, and corporate culture. Management quality includes the operator's decision-making level.
Hardware resources refer to a variety of hardware involved in establishment of ERP systems.
Software resources refer to the performance of the ERP software.

Quantitative indicators consist of seven areas which are

Business ability of innovation and learn, which are business model innovation and business process innovation
Marketing, including sales, orders and inventories.
Business operations management, including enterprise production management, logistic distribution and financial management.
Financial condition includes overall budget, the ability of using financial indicators to monitor the production and operation management.
Assets operation.
Information Resources, specifically the ERP application level and application status.
Business development capability, which is a comprehensive economic indicators. [15]

In the ERP traditional measuremen, ROI is one of the most important parameter in assessment which decides if ERP should be a part of the organization or if it should be given a go by. This is because a lot of money is spent on ERP implementing and training. [6]

One of the important flamework used to evaluate ERP is Balanced Scorecard Approach. The BSC is a framework that constructs the important and relevant KPIs or the key performance indicators for performance measurement and management. Aside from the traditional measures that are associated with the financial aspect, the ERP scorecard has now widened in its effects including internal processes, customers and learning and innovation. Therefore, the ERP scorecard contains the non financial as well as the less tangible features of the business including response time, the implementation and the business functions that support ERP. [19]----[Top]

Conclusion

A successful ERP implementation project brings many benefits to organization. For example, by eliminating redundant information and computer systems, ERP may lead to a reduction in overall information technology costs. It also can shorten production cycles, improve customer services, increase the accuracy of demand forecasts, and reduce expense from operating expenses [20]. In addition, up-to-date and accurate data improved the company’s ability to track and control inventory and forecast future demand, this eventually led to inventory reduction.The disadvantages of ERP is expensive. ERP hav many hidden cost, such as training cost, testing , data analysis, data conversion,etc., [21]Even though, successful ERP implementation brings many benefits to companies, many organizations fail to implement ERP project. This is because the complexity and difficult to control. The study of critical success factors in ERP implementation is an approach that can apply to all ERP projects and this help organization to have better analysis and successful in ERP project.

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