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Strategic Approaches to ERP Implementation

Farshad Salimi Reprocess Limited, U.K. Saxion Hogescholen-Greenwich MBA !!ice, "e#enter, $etherlands in!o%re-process.com Ben Dankbaar Rad&o'd Uni#ersit( $i)megen, $etherlands &.dan*&aar%!m.r'.nl

ABSTRACT Strategic reasoning &ehind +R, triggers a speci!ic path to +R, implementation. -n this article we present a simple t(polog( o! +R, implementation approaches &ased on literat're re#iew and an empirical research !or &oth man'!act'ring and ser#ices. .e disting'ish &etween &ottom-'p and top-down approaches and &etween process-oriented and technolog(-oriented approaches and we disc'ss the di!!erences &etween the !o'r res'lting t(pes o! implementation approaches. Ke(words/ +R, implementation, +R, strateg(, ,rocess-orientation, 0echnolog(-orientation

1. I TR!D"CTI! "'ring the 1234s and 1224s, man( organi5ations were growing thro'gh mergers and ac6'isitions res'lting in e#er higher le#els o! s(stems incompati&ilit( 7in#ol#ing di!!erent legac(-t(pe main!rame s(stems8. At the m'ltinational le#el s'ch iss'es onl( m'ltiplied se#eral-!old 7-#es and 9ar#enpaa, 122:8. 0he challenges o! increasing competition and expanding mar*ets, the search !or &'siness sol'tions in the !ace o! the changes res'lting !rom mergers, ac6'isitions, ta*e-o#er and restr'ct'ring processes, and rising c'stomer expectations increased the press're on !irms to manage total costs in the s'ppl( chain, to shorten thro'ghp't times, red'ce in#entories, expand prod'ct #ariet(, pro#ide more relia&le deli#er( dates and &etter c'stomer ser#ice, impro#e 6'alit(, and e!!icientl( coordinate glo&al demand, s'ppl(, and prod'ction 7Shan*arnara(anan, ;444< Um&le, ;44:8. +R, s(stems were o!!ered with the promise that the( wo'ld meet man( i! not all o! these challenges sim'ltaneo'sl(. n the other hand, the demand !or +R, so!tware pac*ages was also dri#en &( !r'stration with in!ormation s(stem departments= ina&ilit( to cope with s(stems integration 7Holland > Light, 12228, the (ear ;444 pro&lem, and the consolidation o! c'rrencies in +'rope 7?h'ng > Sn(der, 12228. "e#elopments in large, glo&ali5ed companies were s'&se6'entl( !ollowed &( smaller, local !irms e6'ipping themsel#es with c'stom-designed and@or ind'str( designed pac*ages primaril( to lower their costs and add #al'e in their ser#ices to their clients 7e.g. local +R, s'ppliers/ Acto, +xact, ?aseware etc8. +R, implementation ena&les the con#ergence o! organi5ational *nowledge thro'gho't the !irm 7Bas*er#ille, ;4448. 0his con#ergence ma( draw together !'nctional areas within the organi5ation s'ch as man'!act'ring, p'rchasing, in#entor( management, and transportation, and generate s(nergies that lead to more e!!icient prod'ct !lows thro'gho't the enterprise 7"a#enport, 12238. +R, so!tware pac*ages stri#e to s'pport essentiall( all the processes in a !irm=s #al'e chain. Most -0 managers responsi&le !or managing their organi5ations= +R, pro)ect #iewed the +R, s(stems as their organi5ations= most strategic planning plat!orm 7Sweat, 12238. Aet despite the scope o! o!!erings, most c'stomers ine#ita&l( !o'nd that at least ;4B o! their needed !'nctionalit( was missing !rom the pac*age the( had selected 7Scott > Kaindall, ;4448. 0he earl( literat're on +R, implementation re!lects the !act that +R, started mainl( with larger companies and was then ta*en 'p &( smaller ones. -t tends to descri&e the needs and opport'nities o! small companies as a s'&set o! those !acing large companies. 7Mar*'s ;4418 0o a large extent, the de#elopment o! +R, pac*ages and accompan(ing implementation ro'tines were &ased on the same ass'mptions. -n the co'rse o! time, howe#er, it has &ecome clear that there is a wide #ariet( o! moti#es !or +R, adoption, e#en among large corporations, &'t also &etween large and small !irms and &etween !irms !rom di!!erent sectors. 0hese di!!erences in moti#e ha#e an impact on the implementation approach and the s'&se6'ent implementation process. Some companies ha#e largel( technical reasons, mainl( replacement o! legac( s(stems and A;K pro&lems, !or in#esting in enterprise s(stems. ther companies !oc's largel( on &'siness reasons !or adopting enterprise s(stems. 0he( expect to deri#e a competiti#e ad#antage !rom the adoption o! s'ch s(stems. .here the !oc's is on technical reasons, +R, implementation tends to &e treated as a one-o!! pro)ect< where the !oc's is on the impro#ement o! &'siness processes, +R, implementation is more o!ten considered !rom a process perspecti#e, in which the goals o! the process are constantl( 'nder re#iew. Man( companies, o! co'rse, ha#e &oth technical and &'siness reasons !or adopting enterprise so!tware and act'al implementation processes ma( di!!er as a res'lt. -n some

companies, the implementation o! +R, s(stems is dri#en &( top management, whereas in other companies, the p'sh !or +R, s(stems comes !rom the -0 department. C'rthermore, there are e#ent-dri#en di!!erences &etween implementation processes, !or instance, i! the goals o! the pro)ect change d'e to the ac6'isition o! an important new c'stomer. #. DIFFERE CES I REAS! S F!R ERP AD!PTI! Under reasons !or +R, adoption, we disting'ished technolog(-oriented reasons and &'siness process oriented reasons. Mar*'s 7;4448 identi!ied ;D reasons !or the adoption o! +R, and disc'ssed them in terms o! di!!erences &etween large and small !irms. -n ta&le 1, we classi!ied these items into technolog(-oriented reasons and process-oriented reasons. .e also added some additional reasons that we identi!ied in the co'rse o! this research st'd(. -t sho'ld &e noted that technolog(-oriented reasons co'ld sometimes also &e or &ecome process-oriented reasons and #ice #ersa. Cor example, the intention to Ered'ce the so!tware maintenance &'rdenF is not alwa(s reali5ed &( the ac6'isition o! an +R, pac*age. Cor instance, we enco'ntered a compan( that red'ced its so!tware maintenance, de#elopment and implementation costs thro'gh a contin'o's impro#ement process &( &'ilding-'p +R, implementation *nowledge in ho'se.

Technology Oriented Reasons for ERP adoption Sol#e A;K and similar pro&lems. -ntegrate applications cross-!'nctionalit(. Replace hardware to maintain inter!aces. Red'ce so!tware maintenance &'rden +liminate red'ndant data entr( and concomitant errors and di!!ic'lt( anal(5ing data. -mpro#e -0 architect're +ase technolog( capacit( constraints "ecrease comp'ter operating costs ?onsolidate m'ltiple di!!erent s(stems o! the same t(pe 7e.g. general ledger pac*ages8

Process Oriented Reasons for ERP adoption ?'stomer !oc's +nhance !'nctionalit( thro'gh colla&oration with s'pplier and clients Standardi5ation o! processes ,rocess optimi5ation "ecision ma*ing tools Accommodate &'siness growth Ac6'ire M'ltilang'age and m'lti-c'rrenc( -0 s'pport -mpro#e in!ormal and@or ine!!icient &'siness processes. ?lean 'p data and records thro'gh standardi5ation Red'ce &'siness operating and administrati#e expenses. Red'ce in#entor( carr(ing costs and stoc*o'ts. +liminate dela(s and errors in !illing c'stomers= orders !or merged &'sinesses. ,ro#ide integrated -0 s'pport Standardi5e di!!erent n'm&ering, naming, and coding schemes. Standardi5e proced'res across di!!erent locations. ,resent a single !ace to the c'stomer. Ac6'ire worldwide Ea#aila&le to promise Ecapa&ilit(. Streamline !inancial consolidations. -mpro#e compan( wide decision s'pport. ?lear implementation strateg(

Table 1$ Strategic reasoning %or ERP adoption &adapted %rom 'ark(s #)))*$ +. A STRATE,IC APPR!AC- T! DIFFERE CES I AD!PTI! REAS! S F!R ERP

-n o'r anal(sis o! strategic approaches in +R, adoption, we di!!erentiate not onl( &etween technolog(-oriented and process oriented approaches, &'t also &etween top-down and &ottom-'p approaches. A top-down approach is concerned with management dri#en changes and it in#ol#es 7ma)or8 changes in the organi5ation, while the &ottom-'p approach is 's'all( concerned with de#elopment-oriented tas*s and management is not !'ll( in#ol#ed in the changes. Most o! the literat're on +R, implementation ta*es a management perspecti#e and ass'mes that 7top8 management is dri#ing the process. -n realit(, -0 departments and so!tware de#elopers, &'t also other !'nctional departments li*e mar*eting o!ten pla( a leading role. 0his clearl( has an impact on the process o! implementation. -n this research we ha#e paid special attention to +R, implementation in the ser#ice sector and we !ind that &ottom-'p approaches appear to &e more common in ser#ices than in man'!act'ring companies. -n the ser#ice sector, more emphasis is generall( gi#en to processes at the inter!ace with clients= &'siness processes. 0his s'ggests the necessit( !or a

tighter lin* &etween &'siness processes and the clients and a clear 'nderstanding o! the clients= needs in the ser#ice sector. .e o&ser#ed these 'ni6'e characteristics in &oth tailormade s(stem and +R, o!!-the shel! pac*age s(stems in the ser#ice sector. 0a&le ; is the res'lt o! integrating literat're re#iew and empirical !indings. -t presents characteristics o! the !o'r strategic approaches !or +R, implementation. Letters S and M denote the characteristics that appear to &e more speci!ic !or either ser#ices or man'!act'ring. 3.1 Four ERP Implementation Approaches +arlier researchers loo*ed at the +R,-related changes mainl( !rom the management perspecti#e 7i.e. top-down8, &oth in the technolog(-oriented and in the process-oriented approaches. -n contrast, o'r empirical res'lts s'ggest that signi!icant res'lts are achie#ed &ased on &ottom-'p dri#ers in &oth technolog(-oriented and process-oriented implementation approaches. 0he importance o! this section is that it ta*es a di!!erent approach in empirical research concerning the di!!erences in reasons !or +R, adoption and di!!erences in K?SCs in +R, implementation &etween the two sectors. 0he model o! ECo'r Strategic -mplementation ApproachesE that we constr'cted !rom the literat're and empirical data in ta&le 7;8 pro#ided 's with a n'm&er o! res'lts that correspond to the o&)ecti#es o! this research st'd(. .e constr'cted the model on the &asis o! !o'r scenarios< 7a8 top-down technolog(-oriented, 7&8 &ottom-'p technolog(-oriented, 7c8 topdown process-oriented, and 7d8 &ottom-'p process-oriented. -n &'ilding the model, we introd'ced the top-down scenario as consisting o! management dri#en changes, while the &ottom-'p scenario is concerned with the technolog( de#elopment-oriented changes, where management did not initiate these changes. 0he integrated theoretical and empirical models 70a&le ;8 s'ggested a n'm&er o! common characteristics and dri#ers in +R, implementation !or most !irms in man'!act'ring and ser#ices.

Top- down
Characteristics .;* 7Co**er Ser#ices8 &S* B'siness "e#elopment 7 range-Altran8 &S* B'siness &)ecti#es 7General +lectric8 &'* B(siness &)ecti#es 7 range Mar*eting "epartment, application o! data wareho'sing8 &S* Characteristics C'stomer !oc's Enhancing !'nctionalit( thro'gh colla&oration with s'pplier and clients Standardisation-thro'gh the whole !'nctional s(stems 7"SM8 &'* Centrali5ation o! !'nctional areas-and@or sharing ser#ices, e.g. HR > Cinance 7?MGLogica8 &S* Process ptimisation, e.g. ?ost Sa#ings, 7?MG-Logica8 &S* 'aintenance Management 7"SM8 &'* Process Standardi5ation 7Start -?MG Logica8 &S* Cost sa#ings Flexi&le ,rod'ction 7Lam& .eston @ "SM8 &'* Better S'ppl( chain Management 7Lam& .eston8 &'* F't're growth, expansion, in &'siness 7Lam& .eston 8 &'* Cost sa#ings 7Lam& .eston8 &'* Characteristics Clear implementation strateg( Constant watchdog on &'dget Contact management 7Ra&o Ban* -?RM related initiati#e8 &S* 'aintenance management 7Co**er Ser#ices8 &S* !rder control, pre-calc'lation and technical wor* preparation 7Lam& .eston8 &'* 'aintenance Management 7"SM8 &'*

Characteristics Data wareho'sing 7 range mar*eting dept.8 &S* Technical "e#elopments 7 range-Altran8 &S* B'ilding networ*s 7 range-Altran8 &S* ew Applications 7 range-Altran8 &S* Tro'&le shooting 7 range-Altran8 &S* Transition to new #ersion o! data&ase 7Mn Ser#ices8 &S* Transition to new #ersion o! operating s(stem. Separate storage application networ*. Cl'ster technolog( "pdated real time In!ormation s(stem=s str'ct're

Bottom-up (Technology -Oriented) M Manufacturing sector! " "er#ice sector Table #$ Fo(r strategic implementation approaches (Process-Oriented)

The Technology-Oriented Strategic Approaches -n the top-down technolog(-oriented strategic approach, A;K 7prior to millenni'm8 !ollowed &( 7new8 &'siness de#elopment and &'siness o&)ecti#es were the most common dri#ers. ther moti#es were integrating -0 with &'siness strateg(< red'cing the -0 maintenance costs, !acilitating &'siness expansion &( centrali5ation o! the -0 s(stems, and 'pdating the legac( s(stem with the new -0 in!rastr'ct're. Regarding the technolog(-oriented strategic approach, there were #er( !ew !indings in the literat're concerning &ottom-'p dri#ers o! +R, implementation, &'t in o'r empirical res'lts we came across a considera&le n'm&er o! s'ch initiati#es. The Process-Oriented Strategic Approaches -n the top-down process-oriented strategic approach, standardi5ation, c'stomer !oc's, cost sa#ings and integration with s'ppliers and clients were the most common dri#ers !ollowed with other initiati#es s'ch as process optimi5ation, in#entor( rationali5ation and centrali5ation. Again, regarding the process-oriented strategic approach, there were #er( !ew !indings in the literat're concerning &ottom-'p dri#ers o! +R, implementation, &'t in o'r empirical res'lts we came across a considera&le n'm&er o! inno#ati#e &ottom-'p initiati#es. /. C! C0"SI! S +arlier researchers loo*ed at the +R,-related changes mainl( !rom the management perspecti#e 7i.e. top-down8, &oth in the technolog(-oriented and in the process-oriented approaches. -n contrast, o'r empirical res'lts s'ggest that signi!icant res'lts are achie#ed &ased on &ottom-'p dri#ers in &oth technolog(-oriented and process-oriented implementation approaches. 0he t(polog( o! ECo'r Strategic -mplementation ApproachesF that we constr'cted !rom the literat're and empirical data has pro#ided 's with a n'm&er o! res'lts. -n &'ilding the model, we introd'ced the top-down scenario as management dri#en changes, while the &ottom-'p scenario is concerned with technolog( or process-oriented changes, where management has not initiated these changes. Appl(ing these distinctions to o'r empirical material s'ggests that +R, implementation in ser#ices tends to &e more &ottom-'p than in man'!act'ring. Moreo#er, p'rel( technolog(-oriented approaches appear to &e diminishing in importance, &'t more so in man'!act'ring than in ser#ices. Howe#er, this ma( also res'lt !rom the !act that man'!act'ring had a head-start in the implementation o! +R,. 0hese tentati#e res'lts show that the proposed distinctions can ser#e as a 'se!'l he'ristic !or !'rther research.

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