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Chaoyang University of Technology 1

Critical Issues of ERP Systems: A Practitioner’s Perspective

By

Chuck C. H. Law

Department of Information Management,

Chaoyang University of Technology


Table of Content Objectives Literature Review Frequently Encountered Problems Case Study: Tradeco Professional Practice Conclusion


Introduction Objectives:

What are the critical issues related to ERP system adoption and management?

What are the problems encountered in ERP adoption in the business world?

What are considered sound professional practice in addressing these problems ?


Literature Review – Critical Issues – Academic Perspective

Study Findings

Bingi et al. (1999)

* Identified 10 critical issues for ERP implementation, including BPR, and senior management support.

Hong and Kim (2002)

* Relationship between organizational fit of ERP and ERP success (supported)* Moderating effects of ERP adaptation and process adaptation (supported)

Yang et al. (2000)

* Relationship between the extent of business process redesign and ERP benefits. (not supported)

Gattiker and Goodhue (2002)

* Positive relationship between ERP adoption and process changes (supported).* Relationship between process changes and the organizational impact of ERP (not supported).

Kumar et al. (2002)

* 14% of respondents regarded ERP-business process fit as important.


Literature Review – Critical Issues – Academic Perspective

Study Findings

Hitt, Wu, and Zhou (2002)

* Relationship between ERP adoption and firm performance (supported)* The impact of ERP varies with the level of implementation.

Shang and Seddon (2002)

* Qualitative study* Reviewed 233 cases of ERP adoption to identify tangible and intangible benefits of ERP systems.* Interviewed managers of 34 organizations.

Murphy and Simon (2002)

* Case study on intangible benefits of ERP adoption, and showed how such benefits were considered in project evaluation.


Literature Review – Critical Issues – Academic Perspective Study Findings

Ein-Dor and Segev (1978)

* seniority of IT leader, management support, & organizational structure

Davenport (1998) * management support, steering committee chaired by senior business executives

Li and Ye (1999) * Reporting distance between CEO and CIO

Grover et al. (1995)

* management support critical for BPR

Sumner (2000) * management support


A Summary of Critical Issues• impact of ERP, intangible & tangible benefits, justification

• business process improvement / re-engineering

• business process – ERP fit

• process adaptation versus ERP adaptation

• senior management support of IT & BPI projects

• reporting relationship between CEO/CIO, & organizational structure

• strategic intent

• process re-engineering approach

• revolutionary versus evolutionary


Practical Problems Justification of investment Management support User involvement Business process-ERP fit Business process re-engineering Cultural Issues, for instance,

Data ownership Territorialism


Practical Problems Organizational issues, for instance,

Organizational structure Seniority of IT leader / reporting relationship


Case Study - Tradeco A Hong Kong-listed firm

Established by Hong Kong/Singaporean families in mid-1960’s Listed in late 1990’s American conglomerate acquired 60% of ownership in 2000.

Attempted to replace legacy system by ERP


Case Study – TradecoProblems/Mistakes Lack of Management Support

Package evaluation and selection was poorly executed. Managing director ignored recommendation of MIS Manager and

selected an ERP package (X) which did not fit business practice and process

Steering Committee was not attended by MD and other directors MD carried no leadership role in the project.

Lack of User Involvement/support Participation in analysis/design sessions is low Divisions and teams were represented only by junior staff (such as

sales assistants and secretaries) Resistance to BPR


Case Study – TradecoProblems/Mistakes Lack of fit between Tradeco and ERP Package Selected

Actual costing not supported by ERP package Business process not re-engineered to fit ERP, but instead the ERP

was customized

Cultural-organizational factors Territorialism

fierce competition among teams Data ownership

Each team and staff (including senior management) believe that they owned the data resulted from business transactions.

Such concept precluded any co-operation and information sharing along ERP processes – an obstacle to BPR.

Misuse of ERP security features.


Case Study – TradecoProblems/Mistakes Cultural-organizational factors (cont’d)

Company and MIS have no exposure to ERP adoption.

Consultant Management Mistakes in recruiting qualified consultants Mistakes in managing consultants’ activities and time.

Skills and Training Poorly defined and managed training plan MIS and users were offered only standard training courses, which

did not cover Tradeco’s processes.


Case Study – TradecoProblems/Mistakes Methodology & QA

Milestones, deliverables, and responsibilities not clearly defined and enforced.

Control measures were not enforced at milestones such as review of specification, testing …

GAP analysis not conducted BPR not conducted Lacks overall strategy and planning from selection to

implementation


Professional Practice Cultural-Organizational Factors

Senior management support/leadership Steering committee chaired by CEO, and attended by senior staff Promote and manage project as a company initiative, but not an

IT/MIS project IT leadership must be positioned high in the committee and in the

organization structure


Professional Practice ERP-Business Process Fit and Process Management

Gap analysis Business process re-engineering

Always strive to improve and simplify process Process-oriented approach, rather than function-oriented approach Responsibilities of process owners


Professional Practice Methodology and QA

well defined project plan Milestones, deliverables, and responsibilities specified. Gap analysis – fit between ERP and process Business process re-engineering Project organization structure must be defined and members

empowered.


Professional Practice Human Resources & Consultants Management

Must staff project team with internal skills in project management systems/process analysis ERP skills (do not rely totally on consultants)

Must screen consultants carefully Review resume and references

Must clearly define tasks and deliverables assigned to consultants Time report approval – consultant time must be reviewed

according to estimates


Professional Practice Training Management

Needs a long-term perspective in training beyond the project development period

Appropriate training should be offered to various categories of stakeholders in the project

Training must address company’s business processes Vendor’s standard training courses were insufficient/inadequate Joint efforts between vendor & users in training development Train the trainer approach


Conclusion ERP is challenging to most organizations Critical issues/factors must be managed properly

to achieve satisfactory outcomes.


Thank you!

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