Assessing Critical Success Factors of ERP Implementation

Assessing Critical Success Factors of ERP Implementation

Leopoldo Colmenares (Simon Bolivar University, Venezuela)
DOI: 10.4018/978-1-60566-026-4.ch043
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Abstract

An enterprise resource planning (ERP) system is an integrated set of programs that provides support for core organizational activities. ERP is a software infrastructure embedded with “best practices,” or best ways to do business based on common business practices or academic theory. The aim is to improve the cooperation and interaction between all the organizations’ departments, such as the products planning, manufacturing, purchasing, marketing and customer service department. ERP systems is a fine expression of the inseparability of IT and business. As an enabling key technology as well as an effective managerial tool, ERP systems allow companies to integrate at all levels and utilize important ERP systems applications, such as supply-chain management, financials and accounting applications, human resource management and customer relationship management (Boubekri, 2001). ERP systems hold the promise of improving processes and decreasing costs. Furthermore, two important new frontiers for ERP systems are electronic business (e-business) and supply-chain management (Wang and Nah, 2001). The systems can connect with suppliers, distributors, and customers, facilitating the flow, the product and information. ERP systems implementation is costly and complex. In many cases, an ERP system is the largest single investment in any corporate-wide project. The software is expensive, and the consulting costs even more. Meta Group found that the average ERP systems implementation takes 23 months with total owners’ cost of $12 million (Stewart, 2000). The ERP systems implementation is the process where business process and ERP system match each other. Usually the firm has to change the business process per ERP systems. Sometimes most positions have to be redesigned according to the ERP systems. Thus the difficulties and high failure rate in implementing ERP systems have been widely cited in the literature (Davenport, 1998; Kim, Lee, & Gosain, 2005)). The failure percentage of ERP systems was determined by one study as ranging from 40 to 60% and from another study as between 60 and 90% (Langernwalter, 2000; Ptak and Schragenheim, 2000; Yingjie, 2005). Although the failure rates of these ERP implementations have been highly publicized, this has not distracted companies from investing large sums of money on ERP systems (Somers & Nelson, 2004). ERP systems provide companies with the means of integrating their business functions into a unified and integrated business process. As companies implement more enterprise based systems throughout their organizations, the need for integration of these systems becomes even more paramount. Expanding from the functional areas of accounting, human resources, and shop floor control to an enterprise-wide system has become a format for producing full organization integration. Over the past few years, limited research has been conducted about ERP implementation issues: mainly case studies in individual organizations have been reported. That is a motivation toward conducting empirical studies to explore critical factors that affect ERP systems implementation. This study presents the results of an empirical study that surveyed managers from seven corporations, who were identified as having a key role in ERP systems implementation, in order to assess empirically which CSFs are critical in leading a successful implementation of ERP systems. A factor analysis solution was used to derive factors affecting successful ERP implementation. These factors are: ERP implementation management, users aptitudes and communication and technical knowledge. The study reveals that about 81.5 % of the variances in ERP systems implementation were explained by the critical factors identified in the study. The remainder of this article is organized in four sections. First ERP-related literature is reviewed. The next section introduces the research methodology, followed by the presentation of the results. The paper ends with the conclusions and implications for future research and practice.
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Introduction

An enterprise resource planning (ERP) system is an integrated set of programs that provides support for core organizational activities. ERP is a software infrastructure embedded with “best practices,” or best ways to do business based on common business practices or academic theory. The aim is to improve the cooperation and interaction between all the organizations’ departments, such as the products planning, manufacturing, purchasing, marketing and customer service department. ERP systems is a fine expression of the inseparability of IT and business. As an enabling key technology as well as an effective managerial tool, ERP systems allow companies to integrate at all levels and utilize important ERP systems applications, such as supply-chain management, financials and accounting applications, human resource management and customer relationship management (Boubekri, 2001). ERP systems hold the promise of improving processes and decreasing costs. Furthermore, two important new frontiers for ERP systems are electronic business (e-business) and supply-chain management (Wang and Nah, 2001). The systems can connect with suppliers, distributors, and customers, facilitating the flow, the product and information.

ERP systems implementation is costly and complex. In many cases, an ERP system is the largest single investment in any corporate-wide project. The software is expensive, and the consulting costs even more. Meta Group found that the average ERP systems implementation takes 23 months with total owners’ cost of $12 million (Stewart, 2000). The ERP systems implementation is the process where business process and ERP system match each other. Usually the firm has to change the business process per ERP systems. Sometimes most positions have to be redesigned according to the ERP systems. Thus the difficulties and high failure rate in implementing ERP systems have been widely cited in the literature (Davenport, 1998; Kim, Lee, & Gosain, 2005)). The failure percentage of ERP systems was determined by one study as ranging from 40 to 60% and from another study as between 60 and 90% (Langernwalter, 2000; Ptak and Schragenheim, 2000; Yingjie, 2005).

Although the failure rates of these ERP implementations have been highly publicized, this has not distracted companies from investing large sums of money on ERP systems (Somers & Nelson, 2004). ERP systems provide companies with the means of integrating their business functions into a unified and integrated business process. As companies implement more enterprise based systems throughout their organizations, the need for integration of these systems becomes even more paramount. Expanding from the functional areas of accounting, human resources, and shop floor control to an enterprise-wide system has become a format for producing full organization integration.

Over the past few years, limited research has been conducted about ERP implementation issues: mainly case studies in individual organizations have been reported. That is a motivation toward conducting empirical studies to explore critical factors that affect ERP systems implementation.

Key Terms in this Chapter

Critical Success Factors: (CSF) indicates the few key areas of activity in which favorable results are absolutely necessary for the manager to succeed.

Change Management: Change management is the process of developing a planned approach to change in an organization. Typically the objective is to maximize the collective benefits for all people involved in the change and minimize the risk of failure of implementing the change.

Business Process Reengineering (BPR): Any radical change in the way in which an organization performs its business activities. BPR involves a fundamental re-think of the business processes followed by a redesign of business activities to enhance all or most of its critical measures—costs, quality of service, staff dynamics, etc.

Project Management: Is the ensemble of activities concerned with successfully achieving a set of goals. This includes planning, scheduling and maintaining progress of the activities that comprise the project.

Factor Analysis: Any of several methods for reducing co-relational data to a smaller number of dimensions or factors; beginning with a correlation matrix a small number of components or factors are extracted that are regarded as the basic variable that account for the interrelations observed in the data.

Enterprise Resource Planning System: Business software package for running every aspect of a company including managing orders, inventory, accounting, and logistics. Well known ERP software providers include BAAN, Oracle, PeopleSoft and SAP, collectively known to industry insiders as the “BOPS.”

Project Champion: A member of an organization who creates, defines or adopts a new technological innovation and who is willing to risk his or her position and prestige to make possible the innovation’s successful implementation.

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