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ERP Implementation in Transition Economy: Kazakhstan

(Draft Paper)
N.P. Singh
Professor (IT)
Management Development Institute
Mehrauli, Road, Sukhrali,
Gurgaon -121001, India
E-mail: knpsingh@mdi.ac.in

ABSTRACT

Enterprise Resource Planning (ERP) are implemented to automate product planning,


purchasing, inventory management, supplier management, marketing mananagement,
financial management and order tracking function in the organizations. In the last decade
ERP is most sought software product for achieving integrated view of data resources of an
organization. ERP has become industry standard for replacing legacy systems though its
return on investment still doubtful in many cases (Gould (2004)). ERP is a time and resource
consuming implementation with low success rate. This is the reason organization and
vendors follow different strategies for implementing ERP systems such as big bang approach
to slum-dunk approach (Singh (2005)), cherry picking-to-going with flow-to-target
shopping (Devenport (2000)), and best-of-breed v/s single vendor. Literature is full of
research in relation to these approaches in developed economies. However, not much
literature is available on ERP implementation strategies with respect to a transition
economy. This article is an effort by the author to fill this gap. The paper discusses more
than sixteen implementation cases of ERP in Kazakhstan by different vendors in different
kinds of organizations with a view to identify their implementation strategies, and factors
affecting implementation.

Key Words: Enterprise Resource Planning, Kazakhstan, Implementation Strategies,


impediments, Transition Economy.

1. Introduction:

Enterprise Resource Planning (ERP) applications help organizations to become more


efficient by integrating their entire gamut of activities within a single application. Every one
is connected in one environment and gets real-time information. In turn it improves decision-
making process in the organizations. It has become more important to implement ERP if
organization has different location. Implementing an ERP systems components such as
Financials, Sales, Warehouse Management, Human Resources Management / Payroll,
Forecasting, Logistics / Distribution, Manufacturing, Manufacturing Execution Systems
Shop Floor, Customer Relationship Management, Supply Chain Management / Planning and
Quality Control is a very costly and crucial decision in itself. It may have various stages such
as getting started / generating ideas, identification of project leader, selecting project team,
creation of task forces (sales and operations planning, demand management and material
scheduling, performance measures, stock record accuracy, Bill of Material, manufacturing,
Purchasing), Business Excellence Education, Software training, conference room pilots, data
entry, etc. Different user organizations and ERP vendors are opting for different approaches
(Singh (2005), Singh (2007), Devenport (2000)) for implementing ERP to avoid common
causes of their failure (Turbit (2006)) or as a part of their globalization efforts or to increase
efficiency etc. Research studies related to ERP implementation strategies, internal and
external factors affecting the implementation the implementation processes, models to

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support sequencing of modules for implementation, issues relating to cost factors,
complexities of implementation process, issues relating to forecasting of implementation
process success, very basic reason of ERP implementation, industry specific issues etc are in
the following section.

Parr and Shanks (2000) presented a complete taxonomy of ERP implementation approaches.
They categorized implementation strategies in to Comprehensive approach, Middle Road
approach" and Vanilla Approach. They suggested that ERP implementations differs on the
parameters such as Physical Scope, the BPR Scope, Technical Scope, Module
implementation Strategy, Technical Scope, Modules to be implemented. In addition they
have identified motivating factors ERP implementation. According to Huang and Palvia
(2001), ERP implementations approaches are based on national / environmental (economy
and economic growth, available infrastructure, government regulation, regional environment)
and organizational / internal (experience of business process engineering, manufacturing
strength or turn over for non manufacturing organizations, maturity for usage of Information
Technology (IT) within organization, computer culture and size of business, and management
commitment) factors in both developed and developing economy. Aladwani (2001)
suggested that the marketing concepts and strategies are adaptable in the context of ERP
implementation. He suggested that to overcome users resistance to change, top management
using marketing concepts & strategies must study the structure and needs of the users that
may be real cause of potential resistance among them. In addition to deal with the situations
arising out of change, appropriate marketing strategies and concepts may be used on
continuous basis in order to introduce ERP philosophy successfully. Further, evaluation of
the status of change management efforts must be studied to measure the impact with a view
to convince work force.

Kemmeter (2001) presented IDC study that explored the ways in which Lemvigh-Mller
Gruppen (LMG) is addressing the challenge of improving enterprise and supply chain
processes for employees and partners. The focus is on the demands LMG was facing, the
solution being implemented, and the benefits and lessons learned. The study also looks at
some of the options and recommendations that other companies should consider when
addressing similar challenges. Ole Hanseth et al (2001) concluded that SAP has been
implemented in Norsk Hydro as a part of their globalization and reengineering strategies in
order to obtain increased efficiency and managerial control over the business. Yakoulev
(2002) presented a detail case of ERP people-soft student administration implementation and
business process re-engineering at small university and described in detail lesson learned.

AlMashari (2003) presented a novel process change management-oriented model that


considers the key areas in ERP implementation, including strategy, business processes,
structure, culture, information technology, and managerial systems. He supported his model
by empirical-based evidence drawn from a survey of various organizational practices with
ERP implementation. Lau (2003) described several critical issues that managers must
consider before making the final decision to integrate all the business functions in the
organization. He categorized these issues as fundamental issues, people, the organizational
change process, and the different approaches to implementing ERP.

West and Daigle (2004) identified major cost factors that can influence TCO in ERP projects,
issues related to containment of TCO, emphasize the business value of IT and benefits
associated with ERP life cycle implementation with respect to an academic environment.
Ilkka (2004) presented a case study analyses a multiyear ERP (SAP R/3) implementation
project in a global company from perspectives of conflicts and problems the project faced.
His study reveals what pitfalls an inappropriate understanding of the magnitude of changes

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required for implementation involves and what unidentified consequences can result from
this. He pointed out that the fundamental challenge of ERP implementations is not
technology but organizational and human changes, which, if not properly understood and
addressed, can lead to unidentified consequences causing implementation failures. Monteiro
de Melo (2004) observed that ERP is more acceptable in Manufacturing Industries,
Automotive Industries and Chemical Industries in Czech Republic. He observed that the
main motives that lead the enterprises to adopt ERP system have varied throughout the time.
From motivations of technical characters like the problem of the Year 2000 to business
motivations like the reengineering of business process are some of the reasons that
have contributed to the selection of this type of solutions. In the sample, the main
reasons of change are the standardization of the system and a great desire to Obtain
and/or keep a competitive position in the market.

Barki et al (2005) presented a exploratory study of new conceptualization and measurement


of ERP implementation scope and suggested three characteristics of ERP implementations,
i.e., breadth, depth, and magnitude as a means to meaningfully describing the scope of ERP
implementation in an organization, which resulted in new research avenues that will
hopefully stimulate the interest of scholars and practitioners working on ERP implementation
research projects. On the other hand, Yingjie (2005) studied critical success factors affecting
ERP implementation in Finland. He identified six critical success factors for ERP
implementation based on a review of the related literature. He concluded based on his
analysis that Top management support and The Suitability of Software and Hardware
have been extremely important factors in ERP implementation in Finland.

Kim et al (2005) identified that functional coordination & inadequate support from functional
units, project management related to business process changes, and changed management
related to resistance of users are most critical impediments to successful implementation
process of ERP. Viehland and Shakir (2005) devised a four phased macro-level process
model (Preparation, design, implementation and realization) and the micro-level list of 15
strategic decisions (chronological order) to be taken at the time of implementation. They
have mapped these 15 Enterprise System strategic decisions across the process model. This is
demonstrated with two case studies (J.D. Edwards implementation at DistCo and Oracle
implementation at GovtAg ).

Fenema and van Baalen (2005) analyzed relationship between Information Technology (IT)
and an organization emphasizes the complexity of adaptation processes and the potential of
drifting. Their conceptual and empirical research investigates the origins and nature of
drifting, and strategies for dealing with drift. Three strategies have been proposed to deal
with drifting: control, incremental, and drift containment. They had explored the third option
that seems most realistic and relevant in their view from an organizational point of view.

Magnusson et al (2005) developed a conceptual framework for forecasting ERP


implementation success which was then tested against a number of possible stakeholders
outside the industrial support group and discussed the role of such a framework in a software
based tool. This was achieved through an initial in-depth literary review aimed at finding
factors affecting the outcome of the ERP implementation projects. These results were then
communicated to an industrial support group comprised of possible ERP implementation
stakeholders. Wei et al (2005) observed that industry-, company-, and regulation-specific
misalignments often occurred in the chartering phase; misalignments of input, control, data,
process, output, and schedule are the major problems in the project phase; misalignments of
information and new business requirements are the main concerns in the shakedown phase

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and onward and upward phase. The cascading effects of misalignments and change actions
are illustrated, the misalignment resolution strategies examined.

Hallikainen et al (2006) developed and tested an ANP (Analytic Network Process) model to
support the sequencing decision for implementing different modules along with practical
applicability of the method. It will certainly help the companies to convince the work force
relating to utility of the sequencing of the modules. It will resolve unnecessary conflict
among functional units.

As a part of their globalization efforts and transition strategies companies in Kazakhstan are
investing in new technology, and high cost manpower development. It is evident from reform
in education systems and presence of major enterprise systems vendors in Kazakhstan. To
mention a few (i) emergence of institutions such as Kazakhstan Institute of Management,
Economics & Strategic Research, Almaty and Kazakh British University, Almaty, (ii) SAP
with more than 20 installations since 1997 in Kazakhstan planning to double its market share
in days to come, (iii) the ERP/CRM segment has steadily developed in Kazakhstan due to the
progress towards clearer strategic IT vision on the part of the management of local
companies (http://www.buyusainfo.net/docs/x_7941325.pdf (2005)), (iv) Microsoft Business
solutions like Navision and Axapta are promoting Microsoft Business Solutions certified
partners and becoming very popular among Kazakhstan Business Community, (v) SAP,
SCALA and other IT giants including Samsung, CISCO, IBM, are eyeing major e-
government projects in Kazakhstan. Keeping above in mind, author attempted to link above
reviewed implementation strategies in the context of Kazakhstan. Next section 2 presents
various implementation strategies for implementing ERP. Data used for the purpose of
analysis and research methodology are discussed in section 3. Sixteen cases of ERP
implementation or potential users of ERP in future are presented in section 4 followed by
analysis and concluding remarks in the last two sections.

2. ERP Implementation Strategies/Approaches: Singh (2005) discussed seven approaches of


ERP implementation, adopted by user organizations and ERP vendors. These approaches are
(i) Big Bang Approach or Roller Thunder Approach (Brown and Vessey (2000)), (ii) Mini
Big Bang Approach, (iii) Phased by Module Approach, (iv) Phased by Site Approach, (v)
Phased- Product-by-Product Approach, (vi) Franchising Strategy, and (vii) Slam-dunk
approach. This is not an exhaustive list. There are some other terms as Band Aid type project
is also used in the industry.

Devenport (2000) approaches to ERP are cherry picking, going with the flow, and target
shooting. Cherry picking refers to an approach that offers a rapid and safe access to world
class performance coupled with less payback. Going with flow means following the
selections that have been made by the companys business partners. Same vendor products
and better cooperation for data transfer.

Escalle and Cotteleer (1999) represent two approaches to ERP that is best of breed versus a
single vendor. Best of breed means compiling the best possible package from the alternatives
that vendors offer, creating the most suitable, tailored solution for the specific needs of the
client organization. Single Vendor means dealing with one single solution vendor with a view
to achieve better functional integration.

Parr and Shanks (2000) categorized implementation approaches in to three categories, that is
comprehensive, middle road, and vanilla.

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Comprehensive represents the most ambitious implementation approach. Typically it
involves a multi-national company, which decides to implement an ERP in multiple
sites, often across national boundaries. Apart from the physical scope of the project,
there is implementation of the full functionality of the ERP, and occasionally this may
involve commissioning of industry specific modules. It may require extensive BPR
and may take long time and results in multi-million project.
Middle Road as name suggest is mid way between comprehensive and vanilla. This
approach relates to multi site implementation and a major decision is to implement a
selection only of core ERP modules. BPR is significant, but not as extensive as that
required for a Comprehensive implementation. Such systems may take 3-5 years to
implement, and cost up to million dollars.
Vanilla implementation is not a risky implementation approach. It relates to one site
implementation project. It is applicable for implementations where numbers of users
are less than 100. It is an implementation of core ERP functionality only. It is based
on minimal BPR in order to exploit fully the process model built in to the ERP.
Vanilla implementation is a decision to align company processes to the ERP rather
than modify the ERP to reflect unique business processes. These systems are the least
complex, and typically they may be implemented in 6-12 months, and cost less than a
million dollars.

Even after the careful selection of an approach by the organizations and vendor with a high
experience, failure to complete the project with out time over run and cost over run is the
ongoing story of ERP projects. However, in the recent past with some kind of stagnation in
the ERP market, vendors are trying to improve ROI of ERP projects by cutting time of
implementation etc. In the next section author tries to compile information about Kazakhstan
ERP implementations relating these implementations techniques.

3. Data & Research Methodology

It is an exploratory study of ERP implementation in the context of


transition economy. The data was collected mainly from the companies
those have their offices in Almaty. In order to identify implementation
strategies both primary & secondary data were collected and analyzed.
Primary data was collected either by conducting personal interview with
the employees of information technology division of Kazakhstan
corporate, either face to face or on telephone using an unstructured
questionnaire. The author re-structured the primary data collection
around four dimensions / questions.

First, why your company implemented an ERP systems (improvement


in business processes, better coordination & control, pressure from
business partners , compulsion of the business environment etc)
Second, which strategy / approach of implementation (from the above
mentioned approaches) was adopted by organization in Kazakhstan in
implementing ERP and why?
Third, who was the decision maker in selecting a vendor and particular
product/ modules for implementation? (Top Management / corporate
team and / or Information Systems Department).

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Fourth, what were the major deciding factors for selecting a particular
ERP vendor or ERP product? (available local technical support, or local
presence of the vendor, or influence of funding agency, or any others)

Secondary data was collected with a view to substantiate the facts and
conclusion drawn from the analysis of primary data. In some cases it was
not possible to collect primary data due to lack of interest on part of
organization and language problem. In all data could be collected from 18
organizations. The major propositions of interest to be tested on the basis
of data collected from these organizations were:

Proposition I: Most of the companies adopt for phased by module and


phased by site strategy due to lack of IT maturity and resistance to
business process changes.
Proposition II: Most of the companies implemented ERP for
improved business process, better coordination and control and
business compulsions to compete with competitors.
Proposition III: ERP implementations are based on collective decision
of Top Management and IT Team but often influenced by technological
provider in transition phase.
Proposition IV: Local presence of technology provider and funding
agency has significant influence of adoption of new technology such as
ERP and other enterprise systems.

These propositions are examined in view of available data in case of each


implementation studied in this exploratory study.

4. Description of ERP Implementation Cases in Kazakhstan:

The sample units of research study and data relating to their ERP product, ERP vendor and
their implementation strategies in Kazakhstan are compiled in table 1. The major source of
data was interview with employees, internet, and websites of the companies, publication of
companies and other sources of literature. From the data given in table1 it is evident that
many vendors are having their presence in Kazakhstan. Tier -1 vendor such as SAP, Oracle
are implementing many ERP projects in Kazakhstan. In addition teir-2 vendor Scala is also
having a better presence specifically in government and World Bank supported projects.
Many new vendors have entered in CIS market for example 3i-InfoTech, and created a space
for itself in banking & insurance sector (Business Standard (2006), M2 Presswire (2005)). 3i
Infotech has been awarded an order from Kazakhstans Temirbank; for its Universal Lending
Solution, TRITON. 3i Infotech has five banking clients in Kazakhstan by 2008 (Tripathi
(2008)).

Table 1: ERP Implementations in Kazakhstan


S. Name of the ERP Product Vendor Approaches of
N. Company Implementation
1. Kazakhtelecom SAP R/3 SAP AG Phased
Implementation (By
Modules and by
location)
2. KCell NIX-ERP V. TTG Only one module
2.0. International relating to inventory

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is to be implemented
3. KazTranceOil SAP R/3 SAP AG Phased
Implementation (by
Module & by
location)
4. Kazakhstan Petroleum Maximo MRO Only limited
Enterprise Limited Implementation. In
the long run will be
phased
implementation
5. InterGas Central Asia Scala SCALA Phased Approach
6. Mangistau Munay Gas Scala SCALA Phased Approach
(By Location)
7. Mittal Steel mySAP SAP AG Phased
Business Suite Implementation
(By Location)
8. KAZAKHSTAN ERP ERP for Phased Approach
KAGAZY, JSC Document
9. Parker Drilling IC- Leasing IC Limited
Company implementation
10. PeopleSoft People Soft Not much detail
Tengizshevroil Enterprise One available

11. KPO (Kazakhstan) & MaxiPlains Maximo & Phased Approach


Nations Energy. Microsoft
Business
Solution
12. Oil & Gas Exploration IFS IFS Phased by Module
Company Cracow Ltd
13. Kazakhstan Treasury Oracle HP/ Oracle Phased Approach
Financials (three phases)
14. Ministry of Scala Scala Phased Approach
Agriculture,
Kazakhstan
15. Kazakhoil-Aktobe, Microsoft and Microsoft Phased approach
Nelson Resources and Scala and Scala
KazGerMunay
16. The Hyatt Regency Scala Scala Phased Approach
Almaty

5. Cases of Implementation
Case 1: Kazakhtelecom:

Kazakhtelecom (http://www.telecom.kz), a joint stock company is the largest


telecommunication services provider in Kazakhstan. As international operator,
Kazakhtelecom maintains close cooperation with 154 overseas operators and 23 operators in
the CIS and Baltic states, ensuring communication with more than 230 countries across the
world. The rrevenue of Kazakhtelecom was 152.7 billion tinges during 2010 in comparison
to 113.9 billion tinges in 2006. There were 29,855 employees in the company during 2010 in
comparison to 32,878 in 2006. It has 3 802 916 fixed line subscribers and 1 229 772 mobile
subscribers of its subsidiaries users in 2010. (http://www.telecom.kz/download/14-05-

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2011_GodOtchet2010%28eng%29.pdf). To meet its objectives of efficient management and
create reliable database, company started ERP project in 1999. Initially, SAP R/3
components Financial Accounting (FI), Controlling (CO), and Materials Management (MM)
were implemented at companys headquarters in Kazakhstans capital Astana, a number of
regional subsidiaries, and the warehouses (Investkz.com( 2002)). . The implementation was
done by a team of 30 Kazakh telecom employees from its IT and ERP specialist departments
who had received training at SAPs Moscow offices. These power users in turn trained the
other users at the company. It took about nine months to complete pilot project.

In the second phase, the software was rolled out to Kazakhtelecoms subsidiaries and further
SAP R/3 components were implemented, such as Project System (PS), Plant Maintenance
(PM), Procurement, Sales and Distribution (SD), and Human Resources (HR). Today, more
than 1000 people work with SAP R/3 (Kusainov (2004)), The key to the project success was
the continuous strong board-level support despite many hiccups. Further in 2004, the
strategy for developing CIS (Corporate Information systems) for 2005-2007 has been
developed as per company sources. It was based on the concept of BPM (Business Process
Management) the strategy makes the recommendation for a provision of using inherited
(existing) systems within the framework of a single unified OSS 1 (Operating Support
Systems- Base Softwares- Electronic Documentation Circular + SAP R/3 + Data
warehouse)/ BSS (Business Support Systems- ACR (Automatic Carrier Routing) BiTTL
(Billing & Technical System) + CRM Oracle + Genesys + Small World ( + Mediation
Devices + Network Management). The main thrust for the future are:

i. The structuring of the IT decisions vertically


ii. Creation and implementation of OSS systems
iii. Creation of the Telecommunication Network Management Systems
(TNMS)
iv. Integration of the existing systems within proposed OSS systems which is
based on Oracle
Major impacts2 of SAP R/3 implementation are (i) better corporate image in the family of
investors, (ii) reduction of working time of work in the financial department from two
months to one week, (iii) reduction in time from 20th day of following month to 8th day, to get
quarterly financial statements from subsidiary, (iv) steep increase in data accuracy, (v)
standardization of business processes, and (vi) high level of integration across functional
units irrespective of their location. It is evident from the above data it was a phased by
module and phased by location implementation which support the proposition 1. Further the
decision to implement was based on collective wisdom of top management and IT
department that support Proposition 3.

Case 2: KCell (www.kcell.kz/en):


KCELL is Kazakhstans No.1 GSM operator. It has more than 2 million subscribers in the
region. It was set up in 1998 to offer wireless, data and Value Added Services to corporate,
business and individual clients throughout Kazakhstan. It is joint venture between Turk cell
(51% share) and national Kazakhstan Telecom Provider, Kazakhtelecom (49% share).
KCELL has tied with TTG International3 for getting implemented automated inventory

1 http://www.telecom.kz/n/eng/news/invest/03b.pdf
2 http://www.sap.info/index.php4?
ACTION=noframe&url=http://www.sap.info/public/INT/int/index/PrintEdition-
81223dea26d1a1662-int/-1/articleContainer-176533debc5300dfa4
3 http://www.ttgint.com/news4.asp
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provisioning and service assurance capability tools. It will help KCELL to deliver faster and
better services to its clients and subscribers. TTG will implement NIX-ERP, version 2.0
(Inventory Management) business solutions to KCELL. In addition, company has
implemented Customer Relation Management (CRM) tools in its call center. To achieve
integration of data, better coordination among all functional units, company will certainly
implement additional modules of ERP software in days to come as has been the practice in
the telecom industry in Kazakhstan. It will result in then a phased by module approach of
implementation (Proposition 1 hold true in this case also). Further, being a private operator
no funding is provided by any funding agency. It is an independent decision of the company
based on economics of implementation and urgent need of efficient management of its
inventory.

Case 3: KazTransOil4:
KazTransoil5, exports 80% of oil products of Kazakhstan via pipelines. The company
operates 6500 kilometers of oil pipe lines and 3140 kilometer of water lines. Headquartered
in Astana, the national capital employed 6700 employees at the 10 regional centers and at the
55 service stations along pipe network. Companys Computer Center for Joint Use is
responsible for automation of technological and management processes, modernization of
telecommunication networks and implementation of informational technologies. According
to Smankulov (2004), company has selected Gilats FaraWay VSAT platform as their
telecommunication solution. In addition, company implemented SAP R/3 6. Implementation
was done in the phased manner. (i) In 2003 company has implemented four modules i.e.,
Finance (F1), Controlling (CO), Management of Materials (MM), and Selling (CD). (ii) In
2004 Module RM (Repair of Equipments and Maintenance of Equipments) was
implemented. (iii) For future they are planning to implement Module RM- Repair of
Equipments and Maintenance of Equipments in east & west branches of the Company. They
are also planning to develop support and maintenance strategy for the SAP R/3 systems. The
FaraWay VSAT network will support voice, fax and high-speed data communications for
ERP, SKADA (Structural dispatch control and data collection system) 7 for automated control
of the pumping stations and pipelines of the company, Internet and Video conferencing
applications. In fact, relating to data communication and processing 8, company has three
projects, i.e., (i) Introduction of SAP R/3 system (ii) Modernization of operating process
communications line of KazTransOil JSC (FOCL), and (iii) Introduction of dispatching
pipeline control and management system (SCADA) system). Again approach of
implementation is phased approach. However, many modules are implemented together.
Creation of Kazakhstan Petro-bank will enhance the usage of ERP systems in whole sector.

Case 4: Kazakhstan Petroleum9:


As per the Kazakhstan Petroleum, Maximo's flexible configuration and point-and-click
customization technology are key components to fulfill the need of the company. Ability to
tailor Maximo to meet the varied local needs of global operation was crucial for an ERP
implementation of this scope by Kazakhstan Petroleum. Maximos "Strategic Asset and
Service Management provides a solution to achieve these objectives. The solution
4 http://www.kioge.kz/ru/2002/oview/900346270/
5 http://www.kaztransoil.kz/?en=1
6 http://english.pravda.ru/comp/2002/09/25/37225.html (Sep, 25 2002)
7 http://www.kase.kz/eng/emitters/kzto21.asp
8 http://www.kaztransoil.kz/index.html?id=66
9 http://www.mro.com/corporate/maximo/energy/oil-gas.php
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encapsulates the processes and practices used to optimally manage the performance of an
asset according to expectations and requirements of the business. This can include anything
from off-shore rigs to production equipment, mobile devices to office buildings or delivery
trucks. This also includes any outsourced service providers contracted to manage assets at
optimum service levels. Strategic Asset and Service Management gives senior management,
for the first time, the ability to view and manage asset performance from a corporate
perspective. By managing critical assets and services more closely, companies can increase
shareholder value by (a) Improving the uptime of critical revenue-generating assets; (b)
Reducing the costs of acquiring, managing and maintaining those assets; (c)Managing legal
compliance; (d) Reducing risk, and (e) Creating a competitive advantage. Since only one
module is implemnted. Future implemnation will make it phased by implemtation.
Case 5: Intergas Central Asia:
Intergas Central Asia is a state company of Kazakhstan. It has transported 85.6 billion cubic
meters (bcm) of gas during January September, 2005. This is an ample example of its
operations and need for enterprise system. To meet its data capture, data processing and data
reporting requirements, the company had implemented all the basic modules of SCALA
Business Solution. These modules are General Ledger, Consolidation, Management of Fixed
Assets, Book of purchases and Book of sales, Management of purchases, Management of
sales, Warehouse management, and Calculation of wages and staff salaries. It does not
include modules such as maintenance, quality, etc. Any additional module implementation
will make it phased by module implementation. Secondly, it is vanilla type of
implementation.
Case 6: Mangistau Munay Gas (MMG):
MMG Company implements Scala10 Global Series11 (a suite of fully integrated eBMS
software for managing business processes with flexible and modular design) in Kazakhstan.
Initial it was a great success at MMG. Company plans to expand the current user base to
many departments. Company is also planning to roll out implementation to Company
affiliates and remote branches. According to company sources, SCALA is to help MMG to
improve its poor communication system spread across 200 kilometer of semi desert area
where its offices are located by way harnessing full capabilities that the internet offers. In
fact, primary activities of Scala Business Solution Corporation in Central Asia and Caucasus
are sales and implementation of Scala ERP system which helps control finance, manage
procurement, sale, and inventory management, and automate payroll and HR functions. After
gaining experience over 7 years and more than 100 projects, Scala is now an ERP standard
for large and medium enterprises in Kazakhstan. If the MMG goes as per the plan its Scala
implementation will also fall in phased implementation approach
Case 7: Mittal Steel:
It is commented12 on the ITtooloxs ERP-Select group discussion that according to Axis
Comp a steel mill has following issues that not all ERP can handle that is (i) Actual quality
varies from heat to heat, (ii) All material is defined by its attributes and characteristics (iii)
Inventory is tracked at the tag level, (iv) Material application is a function of actual quality,
(v) Material is often reapplied to other orders, (vi) a given product can be produced in
multiple ways, (vii) Quality control & tracking is critical, (viii)Units of measure are variable,
(ix) Inexact quantities are a way of life, (x) Effective scheduling is important to mill
productivity, and (xi) Shipping/receiving logistics are a key aspect of operations. This may be
one the reason
10 http://www.scala.net/news/releases/2000/001107_kazakhstan.asp
11 http://www.itcasestudies.com/case/oil3.html
12 http://erp.ittoolbox.com/groups/vendor-selection/erp-select/908222
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The worlds largest steelmaker Mittal Steel implements mySAP Business Suite in his
companies from Mexico to Kazakhstan13. Mittal Steel companies are host of many legacy
problems which are inherited at the time acquiring these steel plants. Taking over one
company after another, further augment these problems. For managing the growth and
efficient management, the company decided to implement an integrated enterprise resource
planning (ERP) system and settled on mySAP Business Suite, which has gone live in eight
countries and is being rolled out in four others according to SAP INFO. The reason for
selecting SAP ERP could be SAP experience in steel sector. SAP in fact running the business
of all large companies across the world. To substantiate the settlement a partial list of its steel
clients is given in table 2. SAP had been implemented by different companies for different
purpose as per their need. In case of Mittal steel it may bringing some homogeneity among
varying business processes in different countries.
Table 2: SAP clients in Steel Sector in the world
Name of the Company Name of the Comapny
14
Gerdau S A, in Porto Alegre, Brazil HYLSA, USA
BHP Steel, Australia- Woodhead (2003)), LTV Steel, USA
Maanshan Iron and Steel (China) Gnther+Schramm (Germany)
Trinty Metal Solution Inc, (India) Northwest Pipe (USA)
Rasselstein, GmbH ( Germany) Steelcase (USA)
SIN Thai Special Steel (Thailand) Dongkuk Steel (Korea)
Bhler-Uddeholm AG, Austria Comalco Aluminium Limited, Australia,
Umicore SA, Belgium Belgo Bekaert Arames S.A., Brazil
Belgo Bekaert Arames S.A., Brazil Cia. Siderrgica Belgo Mineira, Brazil
Alcan Aluminium Valais SA, Switzerland Metalor Technologies SA, Switzerland
Wuxi Turbine Blade Works, China, AL INVEST Bridlicna a.s., Czech Republic
GESIS, Germany, Hydro Aluminium, Germany,
Rasselstein GmbH, Germany, Robert Zapp Service-GmbH, Germany,
ThyssenKrupp Nirosta GmbH, Germany Asturiana de Zinc S.A., Spain
Societe Alsacienne dAluminium, France Tata Iron & Steel Company Limited, India,
Corporativo Grupo IMSA, Mexico Corus Staal B.V., Netherlands
Corus Tubes B.V., Netherlands, Cambridge Lee Industries Inc., United States
Heat and Control Inc., United States, Mar Mac Wire Inc., United States,
Northwest Aluminum Company, USA, Northwest Pipe Company, United States,
Titanium Metals Corporation, USA

Case 8: KAZAKHSTAN KAGAZY, JSC15:


Kazakhstan Kagazy, JSC is the only Kazakh manufacturer of paper for corrugated cardboard
production in the country. It is also the largest local producer of corrugated packing
materials. Kazakhstan Kagazy is a dynamically developing company equipped with state-of-
the-art facilities. It conforms to international quality standards and high level of client
servicing. Main advantages of its products: - high quality, - reasonable prices, - conformity
with national standards (GOST), - environmentally clean production, - prompt execution of
order, - possibility to apply customers logotypes and advertisement onto packages, -
proximity to local producers. Quality laboratory created by the company is equipped with all

13 http://www.sapinfo.net/index.php4?
ACTION=noframe&url=http://www.sapinfo.net/public/en/ print.php4 /article/Article-
7675428ee59987f80/en (24.05.05)
14 ftp://www.aki-gmbh.de/presse/gerdau.pdf
15 http://www.uzfood.iteca.uz/en/2005/oview/-1762746444/
11
necessary devices and instrumentation for determination of physical and mechanical
properties of paper and cardboard. Output quality is supported by certificates of conformance
issued by the Committee for standardization, metrology and certification. The company has
introduced an ERP system (electronic circulation of documents) for efficient flow of
information from one tier to other in the company.
Case 9: Parker Drilling Company International Limited Aktau16:
Parker Drilling Company provides drilling services on land and offshore including drilling
rigs, project management, and rental tools for energy industry. Parkers land fleet of 24 rigs
operates in 10 countries. The companys offshore fleet of 23 rigs consists of barge rigs in
Caspian17 sea, Nigeria, Mexico & the US Gulf of Mexico. It is not a Kazakhstan company
but operating in Kazakhstan. The company has implemented an ERP system IC-Leasing
developed by IC and IC-Homnet. This ERP is mainly for accounting, enterprise management,
budgeting, GAPP, and International Accounting Standards (IAS) accounting.

Case 10: Tengizchevroil Limited (http://tengizchevroil.com):


Tengizchevroil limited18, the joint-venture consortium developing the Tengiz field, is
comprised of Chevron, Republic of Kazakhstan, Exxon Mobil and LukArco. It is a biggest
oil producing company of Republic of Kazakhstan, with 25%19 of the oil produced in the
republic. As per Robertson & Blums 20, the consortium is one of their customers who had
implemented Peoplesoft Enterprise One ERP product.

Case 11: KPO (Karachaganak Petroleum Operating): Kazakhstan & National Energy21:

It is Petroleum Company and has a power plant to support their refinery plant. It is located in
Aksai, North-Western Kazakhstan and holds more than 1.2 billion metric tons of oil and
condensate and over 1.35 trillion cubic meters of gas 22. This petroleum plant uses Maximo
ERP from MRO. Maximo is the best of breed strategic asset management applications.
Sapphire Systems who is an MRO strategic application partner and the authors of a range of
powerful interface application modules that link leading financial and business management
solutions to MAXIMO {collectively known as 'MAXIFIN 23' which includes SunSystems
(MAXISUN), Navision (MAXINAV), Great Plains (MAXIPLAINS), SAP (MAXISAP)},
has designed Maxiplains a plug and play interface module with inbuilt configuration tools for
the conversion of MAXIMO transactions and data into double entry financial data with
automated updating into Microsoft Great Plains various ledgers via the Microsoft Great
Plains data port functionality. Sapphire has configured the MaxiPlains module to extract a
full range of financial transactions including purchase orders, goods and services receipts,
purchase invoices, time and labor costs, work in progress adjustments and a full range of

16 http://www.homnet.ru/about_eng.html
17 http://www.parkerdrilling.com/newsroom/kaz.pdf
18 http://www.kazakhembus.com/Enormous_Energy_Reserves.html
19 http://www.petroleumjournal.kz/newnomer.html
20 http://www.robertsonblums.com/english/clients.html
21 http://www.sapphire.org.uk/maxiplains.pdf
22 http://money.cnn.com/services/tickerheadlines/for5/200601241125dowjonesdjonline000531_fortune5.htm
23 http://www.sapphire.org.uk/energy/maximo.htm
12
inventory movement cost types from MAXIMO. The company uses this integrated product
but only in limited way.

The MAXIMO Data Development Project is developing the maintenance database for the
KPO facilities in Kazakhstan. The database being developed uses KPOs custom tool data
collection software. Baker Energy (Michael Baker Corporation (2005)) is reviewing the
functionality of the tool and working with KPO to enhance the customization of the tool. It is
being carried out under Computerized Maintenance Management System (CMMS) Services
project. It collects data and populates the CMMS inventory module (28 attributes) for
approximately 20,000 inventory items. It also populates the CMMS equipment module (22
attributes) for 35,000 equipment items. In addition it has other functionalities such as
generating various reports for decision making process. This is an example of a phased
implementation. In future company may go for more module implementation.

Case 12: Oil & Gas Exploration Company Cracow Ltd24:


A subsidiary of Polish oil Company is implementing component based ERP i.e., IFS
application. The company is implementing financials, engineering, supply chain,
Maintenance, human resource, document management, business performance and balanced
scorecard components to bring in better control and optimize operations. This ERP will be
implemented Kazakhstan unit also.

Case 13. Kazakhstan Treasury25:

Ministry of Finance, Republic of Kazakhstan created a treasury to look after budget


execution processes, processing of with respect to finance position of the country, state debt
management and service, and drawing up of reporting to the Government on results of cash
execution under the budget and state extra-budgetary funds were allotted to Treasury bodies
(Carrigan, et al (2005)). For efficient fund management government has taken up a
modernization project for Treasury. Accordingly, BearingPoint was selected to assist the
Kazakhstan treasury modernization project (Vlaisavljevich, (2003)). The project was planed
in three phases. Phase-1 consisted of development of a functional design for the Treasury
system. Phase-2 was concerned with development of computerized Treasury system and
testing at pilot sites. Under phase-3 the computerized Treasury system will be implemented
throughout the country.

The treasury system consists of seven modules. These are treasury ledger, commitment
accounting, account payable, revenue management, payroll, cash management, and asset
management. HP/Oracle had implemented these module using standard features of Oracle
Financials ERP. Three partners of the project are Government of Republic of Kazakhstan, HP
as hardware supplier and Oracle as software supplier. The project commenced in 1995 by
setting up one central processing unit at the Central Treasury in Astana, Kazakhstan and then
15 Oblasts and 220 Rayons were linked with the central treasury. The pilot-testing of the
Treasury system was done at Central Treasury, 2 ministries, 2 oblast treasury offices and 20
rayon treasury offices The Treasury systems was augmented with satellite and fiber optic
24 http://www.ifsworld.com/uk/news_events/press_release_archive/2004-04-
05_oil_and_gas.asp?prcat=2022 (5 April, 2004).
25 http://www.skoch.org/new/html/govt_financials.html
13
communications networks for data transfer with a view to achieve economic improvement
and productivity. The total project duration was 15 months. The project was based on
standard software for treasury activities; therefore, minimum customization was required.
Today, almost all expenditure is processed by the system and it takes just 10 working days to
close the financial year with full control of budget execution.
Further, the best practices built in the Oracle solution are implemented. It has very less
maintenance problems. It can be made fully web-enabled for eGovernance. It has
endorsements from World Bank and International Monetary Fund.

It has resulted in an integrated information system for treasury provides effective and timely
control over financial resources, obligations, payments and assets of the State. Owing to this
system the employees of state-financed organizations get wages, pensioners pensions in
due time, the infrastructure of social sphere is being formed, i.e. schools and hospitals are
under construction. The case supports the proposition 1 of phased by location
implementation of ERP in Kazakhstan. Further, decision was taken in this case by top
management and had influence of funding agencies.

Case 14. Ministry of Agriculture, Government of Kazakhstan:


Scala is working with World Bank in the process of computerization of Government
functions in Republic of Kazakhstan. Scalas first successful implementation was in a World
Bank project implementation unit (PIU) under Ministry of agriculture, Government of
Kazakhstan during 1997. One of the measure features of Scalas product such as Scala
Global Series is fully localized for the needs of Central Asian countries. It has included the
current charts of accounts that were designed with foreign investors in mind. In addition , it
closely follows US GAAP (Generally Accepted Accounting Principles) which are accepted in
Republic of Kazakhstan

Case 15. Kazakhoil-Aktobe, Nelson Resources and KazGerMunay:

The Kazakhstani26 affiliates of software giant Microsoft and Scala Business Solutions are
wrapping up three major projects for Kazakhstani oil and gas producers. These three projects
are Kazakhoil-Aktobe, Nelson Resources and KazGerMunay as per Microsoft Sources. Oil
companies choose Microsoft and Scala because they offer world-class business, financial and
management software solutions tailored to meet the needs of individual firms. The main
advantages of their products are flexibility and modularity, which allows to consider not only
international standards, but also the requirements of local legislation as well.

Case 16. The Hyatt Regency Almaty27:


Hyatts luxury hotel in Kazakhstan has been using SCALA ERP since March 1995. Later on,
it has integrated Epicor iScalas Hospitality centralized accounting systems with the hotel's
financial systems. In addition, it had also integrated reporting and planning tools providing
management with accurate information crucial to running a successful hotel.
After further investigation, Scala Hospitality was chosen as the new financial Integrated
Management Information Solution provider for the hotels managed by Hyatt in Germany.
Scala Hospitality, a fully integrated financial management application, implemented one

26 http://www.kazakhstaninvestment.com/kz-news-04-06-04.html
27 http://www.scala.bmolsson.com/sub_menu_scala_display.asp?Sub_ID=55
14
central accounting system providing access to real-time financial data among all four of the
hotels. Utilizing user-friendly interfaces, Scala Hospitality integrated Property Management
Systems (PMS), Point-of-Sales (POS) systems and financial accounting systems. This
integration eliminated time-consuming double and manual entry functions. The decision to
integrate Scala hospitality was taken in 1997. Hyatt started using SCALA in a phased manner
and keep on upgrading its functionalities. This approach is very similar to phased
implementation. In fact Hyatt Regency has implemented SCALA in its all offices to
centralize operations at regional as well as international level28.

Other Cases: In addition to above cases author has interviewed multinational companies
such as Proctor & Gamble and Banks in Kazakhstan. Multinational companies are adopting
the technology of their parent companies. To mention, Proctor & Gamble 29 is still using
Platinum DOS-based order, shipping and billing package. Company is updating features
through small research intervention. On the other hand parent company had implemented
SAP ERP. Banks in Kazakhstan are switching slowly to enterprise systems including ERP,
CRM and business intelligence systems (Singh and Aizhan (2010)).

4. Analysis

The major ERP vendors in Kazakhstan are SAP, Oracle, J.D. Edwards (acquired by
Peoplesoft and now part of oracle), SCALA (Acquired by Epicor now), Microsoft Business
Solution-Great Plains, Maximo Enterprise, IFS. Out of these Scala, which has approval of
IMF and World Bank has largest implementations in Kazakhstan had implemented over 100
projects in the republic since its arrival in 1996. According to Svetlana Voronina30, Oracle
plans to maintain 40% growth in sales in Central Asia of which Kazakhstan constitute major
share. According to company, 95% of all sales in Central Asia are made up in Kazakhstan. It
may be further to the higher side because of development of a new market segment in
Kazakhstan by these vendors. JD Edwards had developed business-applications for SMEs.
Oracle plans to unveil an e-textbook program for higher education institutions with
translations into Kazakh based on its own technology along with Tamos.

Table 3: Testing of Propositions with respect to Sixteen Cases


S.N. Name of the Company P1 P2 P3 P4
1. Kazakhtelecom
2. KCell
3. KazTransOil
4. Kazakhstan Petroleum
5. InterGas Central Asia
6. Mangistau Munay Gas
7. Mittal Steel
8. Kazakhstan KAGAZY, JSC *
9. Parker Drilling Company * *
10. * *
Tengizshevroil

11. KPO (Kazakhstan) & Nations Energy.


12. Oil & Gas Exploration Company Cracow Ltd *
13. Kazakhstan Treasury

28 http://www.scala.no/news/releases/2002/020314_hyattindia.asp
29 http://www.cio.com/archive/020198/procter.html
30 http://www.bisnis.doc.gov/bisnis/bisdoc/0504KZNews.htm (April, 30, 2005)
15
14. Ministry of Agriculture, Kazakhstan
15. Kazakhoil-Aktobe, Nelson Resources and
KazGerMunay
16. The Hyatt Regency Almaty

= Indicates high degree of agreement with proposition


= Indicates partial agreement with proposition
= Indicates low degree agreement with proposition
* = data is not available

6. Concluding Remarks

With regards to implementation strategies, as evident from the analysis of table 3 majority of
vendors / organizations have adopted phased implementation approach. It may phased by
module or location for multi-location organizations. These implementations can be treated as
early adopters of ERP technology in the context of Kazakhstan. According to literature, early
adopter has gone for big bang / mini big bang approach for ERP implementation in
developing countries. In contrast, Kazakhstan being a transition economy, its companies/
government institution have followed the path of phased implementation. Few of the
possible reasons may be awareness, the lack of trained manpower and experience of using
ERP technology. With the development of other segments of the economy more variation of
implementation approaches may be seen in near future for managing efficiently and tighten
financial control (USTDA (2000)). With the setting up of Petrodata Kazakhstan project with
a capacity of 140 terabytes and its capacity to expand, Kazakhstan will certainly witness
more implementation of enterprise systems. The study has limitation in term of inadequacy
of data for the study. More data may provide a better picture of the implementation strategies.

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