A case study of critical success/risk factors in subsidiaries implementing the parent company’s ERP system

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A CASE STUDY OF CRITICAL

SUCCESS/RISK FACTORS IN

SUBSIDIARIES IMPLEMENTING

THE PARENT COMPANY’S ERP

SYSTEM

MASTER THESIS

Program: MSc Accountancy & Control (Accountancy track)

Student: Radu Paun

Student number: 10044833

First supervisor: Dr. Rui J.O. Vieira

Second supervisor: Dr. Georgios Georgakopoulos

Date: June 25th 2014

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APPENDIX A.TABLE OF CRITICAL SUCCESS AND RISK FACTORS. 59 APPENDIX B.PRACTICAL ITERATIVE FRAMEWORK FIGURE 59 APPENDIX C.INTERVIEW GUIDE 60 APPENDIX D.INTERVIEW INFORMATION 67 APPEDINX E.WATERFALL METHODOLOGY USED FOR IMPLEMENTATION: 67 APPENDIX E.IMPLEMENTATION SS3TIMELINE 68 APPENDIX F.TEAM AND STEPS CHART 69

APPENDIX G.PROJECT TEAM 69

APPENDIX H.MEETING STRUCTURE 70 APPENDIX I.RESULTS TABLE 71

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ABSTRACT

PURPOSE: This study examines how a list of identified Critical Success Factors (CSFs) and Critical Risk Factors (CRFs) affect the implementation of a parent company’s ERP system by a subsidiary. DESIGN/METHODOLOGY/APPROACH: For the purpose of accomplishing this task, a case study on a multinational pet healthcare company was conducted. For examining the impact that the CSFs and CRFs had on implementation, interviews, documentation and personal observations were used as sources of information.

FINDINGS: The results show that the project team’s abilities and experience, the integrating of all departments, training of employees and testing are the most influential on ERP implementation and also explain how each of these factors influences implementation. It is also discovered that budgeting and ERP consultants play less of a role than previously expected and the reasons behind this. Also there are some factors, such as timing, which are context specific and it is presented in more detail why this is the case.

PRACTICAL IMPLICATIONS: Knowing which factors have the most influence on the implementation process as well as how each factor influences this process can help the project team structure its priorities. It also helps them decide which tasks need more attention and more resources allocated to them.

ORIGINALITY/VALUE: This study focuses on the CSFs and CRFs that relate to subsidiaries implementing a parent company’s ERP system, which is not covered in great depth by other articles. Also, both success and risk factors are considered.

KEY WORDS: ERP systems, subsidiary, Critical success factors, critical risk factors, ERP system implementation.

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NOMENCLATURE

ERP Enterprise Resource Planning

CS Customer Support

AP Accounts Payable

GL General Ledger

FP&A Financial Planning and Analysis

SOP Standard Operating Procedure

SS2 Southern Sun 2 – the code given to the SAP implementation for the IHD entity SS3 Southern Sun 3 – the code given to the SAP implementation for the WLPD entity

IHD In-House Diagnostics

WLPD Water, Livestock, Poultry, Dairy

ECD, UAT, ECP, ECQ Testing environments used in different stages of implementation EMEA Europe, Middle East, Africa

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1 INTRODUCTION

1. 1.

BACKGROUND

In recent years, the number of research and technological breakthroughs seems to be increasing more rapidly than ever before. Many new companies have appeared to try and take advantage of the ever increasing range of products available as a result of technological advances. Existing companies have expanded into new fields, acquired subsidiaries or entered into partnerships in the hopes of reaching more and more consumers. Large companies such as these are greatly dependent on their accounting system to be able to function properly and to prosper. Therefore the choice of an appropriate accounting system is vital. It can mean the difference between large profits or bankruptcy (Scott, 1999). An effective accounting system is important especially if a company wishes to keep pace with the recent booms in research, production, commerce and competition.

”Whether because the capacity of computers and programming languages was too small or organizations were content to manage themselves along narrow functional lines, the 1970s vision of a single integrated information system for the enterprise remained a mirage for the majority of computer-using organizations” (Markus et al., 2000a, p 174). When companies found new applications for IT, new information systems were developed. In the cases that these new systems shared common aspects with the old ones, they were loosely related (even manually at times), instead of close integration with the existing systems. As a direct result of this loose relationship, the combination of accounting data with data on sales, for example, was problematic. This system only permitted analyses to be made at a summary level. If one wanted to look at individual transactions, special programming was required, or manual search of the documents. Multiple data entry was a big issue since the system was not automatically updated each time a change appeared. At one point in time, the cost of keeping all these systems going exceeded the cost of developing a new and better system.

Enterprise Resource Systems (henceforth ERP) systems did not have much success with large firms until somewhere in the mid-1990s. By 1998, roughly 40% of firms whose annual revenues exceeded $1 billion had implemented ERP systems (Willis & Willis-Brown, 2002). Vendors began targeting smaller firms since they made up a larger part of the market. The potential

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benefits for the successful adoption of an ERP system were widely regarded to be huge. However, looking past the potential benefits of successful implementation, it can be seen that the process so far has not been a smooth one. ”Some organizations have utterly failed in their attempts to install ERP systems” (Markus et al. 2000a, p 246). Other companies have managed to obtain some advantages and benefits as a result of ERP implementation, even though their starting was not great (Markus et al. 2000a, p 246). There are also those companies which have failed to achieve the financial returns which they have hoped for, as a result of their investment in an ERP system (Willis & Willis-Brown, 2002).

Throughout the 1980s and 1990s however, the Netherlands, United States of America and Germany (among others) kept on developing integrated systems that made use of a single database per entity. “A single transaction such as a sales order could “flow through” the entire applications suite, automatically updating financial and inventory records without additional data entry and feeding various planning and decision support systems” (Markus et al., 2000b, p 174). Companies claimed that these integrated packages were able to meet all of the information needs of a company. ”These packages became known as enterprise resource planning (ERP) systems, and they include some that have developed out of the administrative (financial and human resources) side of the business (e.g., SAP and PeopleSoft), as well as some that grew from materials resource planning in manufacturing (e.g., Baan)” (Markus et al., 2000b, p. 175). For example, the result of one company’s implementation of an ERP system was that it was able to reduce accounting personnel by 70% through the elimination of duplicate data entry and certain consolidations that were previously manually conducted (Larsen & Myers, 1997).

The decision to implement an ERP system is never taken lightly. Companies spend a long time deciding on the ERP system to be adopted and carefully weigh the benefits against the probable costs. ”Implementing an ERP causes massive change that needs to be carefully managed to reap the benefits of an ERP solution” (Bingi et al., 1999, p 7). ”It is a critical issue to select the suitable ERP system which meets all the business strategies and the goals of the company” (Cebeci, 2009, p 8900). One of the reasons that the importance of this decision cannot be overstated is because of the commitment that follows from this decision. Companies spend billions of dollars and many man-hours for the implementation of an elaborate ERP software system (Yusuf et al., 2004). It can be argued that this is the most important decision management makes with regard to a new system, as a wrong system choice means that all the money and man-hours spent on implementation are wasted.

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3 After choosing an ERP system that appears to fulfill the company’s information needs, the subsequent and most difficult step is implementation. Successfully implementing an ERP project means selecting an ”appropriate” ERP system and a co-operative vendor, implementing the system, business process change should be anticipated and managed and an analysis of the practicality of the system (Wei et al., 2005).

Despite all the promised benefits of ERP systems, implementing them is still an issue in the corporate world. This gave rise to a number of studies and researches conducted with the objective of finding out what helps ERP implementation, and what is an obstacle. Studies have so far come up with a number of critical success and risk factors (CSF and CRF, respectively) that companies should pay attention to when commencing with implementation. As a definition, a critical success factor is a factor without which ERP implementation cannot successfully take place. A critical risk factor is defined as a factor that can, on its own or together with other CRFs, prevent successful ERP implementation. These factors are largely dependent on situational circumstances or environmental conditions and are not universally applicable. Each company faces a different challenge in implementing ERP systems. Examples of failed attempts at ERP implementation include Unisource Worldwide, Inc. (a distributor of paper products worth $7 billion), FoxMeyer Drug ($5 billion drug distributor, went bankrupt and blamed SAP), Dell Computer Corp. and Dow Chemical. All of these were large companies that disposed of vast resources and capital (both human and financial), and yet their implementation attempts failed. Successful implementation examples include Coca-Cola (soft drinks), Samsung (technology industry) and Walt Disney (entertainment) (Markus et al. 2000a).

After implementation, growing companies may face another problem: the accounting system of newly acquired subsidiaries. These new entities may have a different system than the parent company, which would slow the transfer of information between the two entities. In such a case, the parent company may choose to impose its own ERP system on the subsidiary. ”Multinational implementations of ERP involve added complexity” (Olson et al., 2005, p 1). There are many different issues that can arise and affect expanding a system to encompass a foreign subsidiary, such as culture, language, political factors, management style and so on.

The aim of this paper is to first identify a set of success and risk factors previously presented and discussed in literature, and then analyze and understand how these factors affect the adoption of an ERP system by a subsidiary. The research methodology for this paper is a case study conducted on company Alpha. Interviews of certain employees, which are implicated in this

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implementation process, will be taken about these factors and how important they consider them. The interviewees are also asked why they believe these factors are important and how they believe that the factors impact the company. After identifying all of the different factors from the selected studies, they are analyzed in the context of company ALPHA. Together with the interviews, personal experience from the researcher and a study of provided documents related to the implementation process is supplied.

1. 2.

MOTIVATION

The literature in the field thus far presents a gap in that, to my knowledge, there are no articles that contain both risk and success factors relating to the adoption of an ERP system by a subsidiary. There are existing articles which cover either a set of risk factors or success factors about the implementation by a whole company. In addition to this, there are no papers that study the factors that have been discovered in previous papers and compile a list of the most widely encountered factors. Among the lists presented in other articles, quite many are found to be statistically insignificant. A study of other relevant literature is conducted, and from the articles and papers studied, the factors which appear to be the most relevant (most likely to be able to influence the ERP implementation process) and commonly encountered are selected and compiled into a list. The results of this study cannot be universally generalized, as the impact of these factors usually depends on the size and operations of the company. However, parent companies who acquire subsidiaries and extend ERP systems to them are probably financially stable enough to offer the same level of support as Company Alpha. The results will contribute to shedding some light on the existing success and risk factors. This paper also makes a contribution through analyzing the adoption by a subsidiary of the ERP system imposed on it by the parent company, using previously studied CSFs and CRFs. It will serve to show how they are relevant for subsidiaries and companies closely resembling ALPHA. Whereas not all companies are the same, a list of potentially important factors is worth studying as it could provide clues as to what other companies and subsidiaries went through during implementation. Therefore this is an important source of contribution to existing literature.

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1. 3.

RESEARCH QUESTION

The first part of this research examines previous articles that study success and risk factors. The factors that are found to be significant are grouped into a list. The remainder of the study is conducted through a case study. Upon determining which factors are found to be important this paper attempts, using interview analysis, to answer the question: how do the identified risk/success factors affect the implementation of an ERP system by a subsidiary? In addition to the research question, all extra relevant knowledge divulged by interviewees is examined and analyzed. This paragraph presents the structure that this paper will follow. The second section is the literature review section. Numerous articles are discussed here, along with the findings and conclusions presented within. The purpose of this section is to both introduce readers to prior literature in this subject as well as to lay down a theoretical foundation on which the rest of the paper is built. Also, this section introduces the critical success and risk factors and the articles from which they come. They are compared and contrasted and a list of final factors to be studied is provided. In the final sub-section, this section presents the framework used in analyzing the interview results. The subsequent section is the methodology section, where it will be explained why a case study was chosen to be the research method, as well as providing more information about the data collection and analysis. The next section is the findings section. Here, some background knowledge about the company is presented as well as an analysis of the interviews with respect to the success and risk factors analyzed, using the framework discussed in the methodology. This section contains citations and quotes from interviewees and articles alike in order to promote validity. The final section concludes this study and summarizes what the objective of the paper was, what was found, and also presents possible future research topics and limitations this research had.

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2 LITERATURE REVIEW

This section serves to use prior literature to describe the terms, factors, theories and frameworks used later in this paper. Wei et al. (2005) claim that “a successful ERP project involves selecting an ERP software system and co-operative vendor, implementing this system, managing business processes change and examining the practicality of the system”.

Following this statement, this section is further divided into the theory behind ERP systems selection, implementation, testing, post-implementation and studies of identified risk and success factors. All throughout describing the whole adoption process, some of the CSFs and CRFs will be presented in an attempt to clarify where each factor comes from and what the reasoning is behind it. The final subsection will serve to present the final list of factors selected to be studied by this paper.

2. 1.

ERP SYSTEMS AND SELECTIONS

The first of many difficulties for a firm which decides to implement an ERP system is deciding on the system it will implement. This is a crucial step in the whole process as if the wrong system or vendors are chosen, everything will collapse later on. Therefore, the company needs to conduct ample research into its possible alternatives and evaluate which of them best fits the company’s operations, processes and goals. Due to the importance assigned to this stage of the company’s transition, it has been the object of numerous studies.

Cebeci (2009, p 8900) says that “determining the best ERP software that fits with the organizational necessity and criteria, is the first step of tedious implementation process. Hence, selecting a suitable ERP system is an extremely difficult and critical decision for managers. An unsuitable selection can significantly affect not only the success of the implementation but also performance of the company.”

This stage is also known as the chartering phase (Markus et al., 2000b). This phase encompasses everything leading up to the funding of the ERP. Markus et al. (2000b) claim that vendors, company executives, consultants and IT specialists play a key role in this phase. According to Bingi et al. (2006), having qualified ERP consultants significantly increases the probability of successful adoption. This is not always the case, as sometimes vendors make sales directly to company executives, with very little involvement of IT specialists, sometimes the opposite is true.

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During this phase, the company builds a case for the enterprise system, it chooses a project team, a project manager, and it should come up with and submit a budget and a schedule (Markus et al., 2000b). The last part is especially difficult because there are usually hidden costs associated with implementing an ERP system. With these unexpected costs can arrive extended budget approvals, which in turn can extend the schedule. Extra costs and not being able to maintain the schedule can cause managerial pressure, unfavorable shareholder reactions due to delays and overall tension at the workplace (Aladwani, 2001), therefore it is important for plans to be executed efficiently once laid down. Another advantage of planning is that a firm has a benchmark to which it compares extra expenses. If these expenses keep adding up, it would know to back out of a project without incurring more losses (Gargeya & Brady, 2005).

Ross (1999) claims that there are a multitude of problems that can arise in this stage, such as an incomplete business case (or a faulty one), an underestimation of the need for organizational and process change that goes with the implementation of an ERP system, or undefined objectives. Bad results of this phase could be a decision not to implement the system when it was actually required, or ordering the wrong type of system, allocating insufficient resources for the training of personnel in using the system, or appointing an inexperienced project manager. Therefore, it is very important for a company to plan extensively before the implementation actually begins (Aladwani, 2001). Because any number of things can go wrong, an experienced project manager is necessary to account for all contingencies and make sure the system will be successfully implemented.

Aloini et al. (2007) also note that “ineffective strategic thinking and planning” can be a major pitfall for the new system. The company must clearly identify the business goals that are addressed by the system. Identifying these goals will give employees a clear direction and objective to pursue (Aloini et al., 2007). The author also claimed that “alignment of IT strategy with the organization’s business strategy must be enabled by senior executive support. If an organization tries to install a system without establishing a clear vision, every effort can turn into a disaster.”

Due to the complexity of the business environment, the limitations that companies present with respect to resources, and the diversity of ERP alternatives and choices, the selection process can be quite tedious and time consuming. However, due to the sizable financial and temporal investment that a company needs to make, as well as the risks and benefits at stake, the importance of a pertinent ERP system selection cannot be overemphasized (Teltumbde, 2000). Because of the importance placed on this step, it is evaluated as one of the critical risk factors.

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9 Even before selecting the ERP system, the company has to choose from the multiple selection tools given them. Teltumbde (2000) has proposed a methodology which is based on the nominal group technique, as well as the AHP for evaluating ERP systems. A neural network evaluation model was proposed by Huang et al. (2008), while Cebeci (2009) promotes the balanced scorecard method. Therefore there is no lack of selection tools. The company must analyze which of the existing tools is most advantageous for them and then use this tool for selecting a system.

When making their choice, the project team must keep in mind the fact that there is no single ERP packaged software that is equipped to meet all of a company’s functionalities or business requirements (Sarkis and Sundarraj, 2000; Teltumbde, 2000). Companies have to therefore choose a flexible ERP system and co-operative vendor. “Decision makers frequently adopt the common ERP evaluation criteria as the measures without developing tailor made objectives and clear requirements that echo the company characteristics, its position in its competitive environment, and its corporate strategy” (Wei et al., 2005).

As can be seen, the company starts facing risks even as early as the planning stage. Upon using the tool and selecting the system, the company enters the implementation phase, which is described in the following section.

2. 2.

IMPLEMENTATION

Bingi et al. (1999, p 9) state that “even in a single site, implementing ERP means Early Retirement Probably. An ERP package is so complex and vast that it takes several years and millions of dollars to roll it out. … In fact, implementing any integrated ERP solution is not as much a technological exercise but an “organizational revolution.” They also claim that the implementation of an ERP system is not, in fact, a matter of modifying software, but actually a matter of changing the company and transforming business practices. During this phase, it is also crucial to maintain open communication with the vendors and consultants. Any outside experience that can help make the transition a smooth one should be taken advantage of. It can also be possible that some employees have used the system before. If so, this is a resource to be exploited.

Yu (2005, p 123) states that a company must have clear “organizational requirements, particularly as related to need for data access and reporting”. The reason for this is that it must be clear during implementation which departments need to communicate most with each other and

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what type of data needs to be transferred between them. Knowing this, the implementation can build around this model and provide the data links as required for maximum efficiency (Yu, 2005).

As Bingi et al. (1999) identify, one of the most critical aspects of ERP implementation is the changing of business processes by a company. Workers resistance to this kind of change can become a serious obstacle to successful implementation. Therefore, Aladwani (2001) proposes a three phase framework dealing with this resistance: knowledge formulation, strategy implementation and status evaluation.

The first stage involves gathering knowledge about where this resistance is coming from, and finding the needs of the resisting group. For example, some users may be afraid of not knowing the new system, others could argue that they have done a good job for a long time without ERPs; some might think that their jobs will be rendered obsolete because of the improved system (Aladwani, 2001). In an ideal case, however, management can anticipate the reticence of employees and inform them well in advance of the benefits of the system and assure them that their jobs are secure. The second phase makes use of the data gathered in the first stage to minimize workforce resistance to the new system. Actions taken can include courses on how to use the system. This stage must go hand in hand with the actual system implementation, as it will be easier for users to notice how the processes they are responsible for gradually change in response to the new system. This will not only make for a smooth transition process, but it comprises one of the key success factors to implementation Aladwani (2001). Finally, it is important to have continuously monitored the progress of implementation as well as employees reactions to it. Aside from becoming more experienced with the system, they can be a valuable source of troubleshooting the system, as they are the ones who operate it firsthand. In essence, it all comes down to training the employees to use the system (Aloini et al., 2007, Aladwani, 2001).

One issue with training employees arises in companies with high turnover ratios. As employees are expected to leave and be replaced quite frequently, it is probable that a proper handover will not happen. This will leave the new employees “stumbling through the dark” trying to figure out the tasks that have not been properly explained to them. This should be considered beforehand and proper handover documents related to the ERP should be created during implementation (Aloini et al., 2007).

Markus et al. (2000b) claim that one of the most important factors in the whole implementation process is implementation prioritization. Everyday tasks must take second place

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11 and not always get in the way of implementation. Management and employees alike need to understand that by sidelining the project, it loses momentum, enthusiasm and priority and will lead to large delays. As such, it is classified as a key factor in the success of implementation (Markus et al., 2000b, p 202).

“It is almost impossible and not advisable to change an organization to meet the out-of-the-box solution of an ERP system” (Grossman & Walsh, 2014, p 38). Although this will lead to more rapid implementation (and some companies are willing to make a compromise and accept the limitations of this edition), it will require the company to change more of its core processes to fit the standardized solution. “Regardless of how many people are included to help from an ERP vendor or an implementation partner, it stills requires a major commitment from an organization’s employees. Only the employees know the processes and institutional history that makes the organization successful” Grossman & Walsh, 2014).

Yu (2005, p 128) also claims that it is vital that top management is involved in the process of implementation. “ERP is doomed under the control of inadequate/wrong persons because this investigation identifies that “CEO commitment and involvement”, “professional management background of MIS leaders”, and “top- and middle-management commitment and involvement” are three key triggers that are extremely significant in triggering a series of activities via the implementation process. Consequently, the greatest complexity and difficulty in ERP implementation lies in dealing with human being including all-levels of management and end-users throughout the organization.” This paper studied the mutual effects of beliefs, attitudes, behaviors and results of employees on ERP implementation. The study found that resistance to ERP implementation from end users is inversely proportional to professional management involvement and knowledge. As mentioned previously, this kind of project is not a computer issue, but instead it is a people issue. As such, IT managers and management information system leaders do not possess enough management training or background and lack the necessary understanding of user needs and other organizational departments. This can create inconsistencies and difficulty in communication (which is one of the CRFs) (Yu, 2005).

Aloini et al. (2007, p 553) also stress top level management involvement, as well as key user (employees) involvement: “key users should be convinced of the system utility; moreover they must be confident and expert so that they can aid future users in training sessions. User commitment and a “project champion” (who has the vision to get the project going and pushes for the project to be accepted where there are competing priorities) are useful in the early stages of the

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project and during the implementation phase.” The “project champion” that is mentioned generally takes the form of the CEO or other top level manager, who has the authority and vision to inspire acceptance of the project.

2. 3.

TESTING

“Many companies make the mistake of assuming that once an application concept is proven in the pilot phase, it can go live. That is far from the truth. The pilot phase is merely a prototyping phase. Once that is complete and all the data has been loaded into the system, stress testing must be performed. What works in small volumes does not necessarily work when put under the operational loads of a live environment.” –Grossman & Walsh (2014)

As mentioned in the above statement, any number of things can go wrong after the pilot phase. Allowing the company to run solely on a newly implemented ERP system that has not been properly tested is extremely risky at best. By first conducting tests to see if the system performs adequately, the company can save itself a lot of potential trouble, costs and even bankruptcy (Grossman & Walsh, 2014). Testing can reveal, for example, that the response time of the system degrades to levels low enough to impede daily operations. Another danger is that the network becomes overwhelmed by the amount of data introduced and crashes.

One process that companies engage in is managing shadow accounts. What this process does, is basically continue to run the business as before implementing the ERP system, while running the new system in the background and feeding it the same information as it would get if it were operational. This eliminates the risk of operations being impeded and so making losses, as the accounts are only a mirror image of the real ones, only meant for checking whether the system works. This not only tests out the system, but it also gives employees a chance to get more familiar with the system within a real working setting.

2. 4.

POST IMPLEMENTATION PHASE

Upon successful implementation, the company starts using the ERP system within its daily business, and the benefits that it promised are steadily becoming visible. As such, the company becomes more and more dependent on it. Gargeya & Brady (2005) as well as Aloini et al. (2007) emphasize the importance of planning, development and budgeting. They also stress post implementation planning and budgeting. With time, the system will require maintenance, upgrades,

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13 extensions, security upgrades and so on. Budgeting for these costs can help the company make adequate financial planning for its business and plan ahead. Failure to do so can lead the company to inadequate financial management, which was identified as Aloini et al. (2007) as a CRF.

For this reason, it is important that the company receive long term support from the vendor and consultants. Engaging a new vendor can be costly, as well as inefficient as the new vendor does not know the system implemented as well as the original vendor. The updates might also not be compatible and more changes could have to be made. This leads to the potential issue of inadequate contracting, which is also a CRF identified by Aloini et al. (2007).

Some risks depend on the nature of the company. A fast growing business, for example, can have difficulty keeping track of the people that have access to data and the data that they have access to. Employees that have too much access to data could disrupt the natural flow of information by providing inputs that others were also supposed to book, and cause double entries (even though avoiding this was one of the benefits of ERP systems). The system might not allow a double entry and signal the error, and then there will need to be a correction and the person who made it tracked down and so on. This takes time that is effectively wasted by employees, as this should not happen with adequate planning and dutiful tracking of access. The flipside of this coin is when a person has too little access to information. This issue of fast growing companies not being able to keep the system up to date is an example of a failure to link the technology plan to the business strategic plan. Due to the dangers outlined previously, it becomes clear why Aloini et al. (2007) classified this as a CRF.

2. 5.

SUCCESS AND RISK FACTORS

The previous sections have covered not only the processes of ERP system selection and implementation, but also post implementation precautions that management must take. Among the descriptions of each phase of the project, the important factors were emphasized to point out where, in theory, they affect a company. All of the factors which are discussed in the interviews are presented in Appendix A.

This list comprises some of the most important and significant factors produced by previous papers. The rest of the paper focuses on explaining why these factors are relevant for company Alpha, as well as the way in which they affect it.

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This sub-section concludes the theoretical framework section. The subsequent section is the methodology. Here the research design, data collection phases and the proposed analysis framework are analyzed and presented.

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3 METHODOLOGY

This section starts by describing the research design, which shows why a case study was selected. The subsequent sub-section describes the data collection process and provides some information about the interviewees. The final section presents the framework used in analyzing the data collected.

3. 1.

RESEARCH DESIGN

As shown previously, there have been many risk and success factors that have been studied throughout different papers. However, some papers’ methods of coming up with these factors are based on assumptions and so are purely theoretical. Also, some of these factors have yet to be confirmed as useful in ERP implementations. There is also a lack of research about CSFs and CRFs in the implementation of an ERP system by the subsidiary of a parent company. Because some of the CSFs and CRFs in previous studies could turn out to have no practical significance, the research question in this study are meant to show which have the most practical relevance, but more importantly to improve our understanding of these factors. Specifically, I intend to study why and how the success/risk factors identified played a part in the implementation of an ERP system by a subsidiary.

In the interest of providing answers to these questions, a qualitative research methodology is employed, as it focuses more on the analysis of different opinions and understanding. It is also the ideal research type for answering ”why” and ”how” questions, which is not possible using quantitative research. Whereas a quantitative model could theoretically be built by representing each factor with a dummy variable, the difference in circumstances, industry, history, legal and economic environment between companies also make any finding non-generalizable. Qualitative research allows for deep understanding and explanations for the studied phenomenon. This is the type of research that is best suited to answer the research question.

“Qualitative research tries to interpret social phenomena, using the meanings people attach to their experiences of the social world and how they make sense of the world”.

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Holloway (1997) describes qualitative research as a type of social inquiry which is focused on how people understand and interpret experiences as well as the world around them. The use of qualitative approaches by researches to study the experiences, opinions and rationalizations of people attempts to promote the idea of multiple views, as opposed to one view which is held as the absolute truth. Merriam (2009, p. 14) claims that the aim of qualitative research is ”understanding the phenomenon of interest from the participants’ perspectives”. As opposed to quantitative research, ”qualitative researchers study things in their natural settings” (Denzin and Lincoln, 2011). ”The product of qualitative inquiry is richly descriptive” (Merriam, 2009, p. 16), therefore we can conclude that qualitative research is adequate in order to obtain a more complete and practical understanding of critical success/risk factors.

There are two ways to use theory in qualitative research. The first is when the theory is omnipresent in the study and acts as a ”set of explanatory concepts” (Ahrens and Chapman, 2006) which have the role of analyzing findings and drawing conclusions from the collected data. The theory is not taken for granted though, and it is constantly adapted to the circumstances of the context. Therefore, by engaging in qualitative research, theories are often refined, improved or rejected when appropriate evidence is presented. The other approach is known as the ”Grounded Theory” approach. In this approach, data is collected and analyzed, and subsequently the researcher builds a new theory which explains the different themes that arise from the data analysis. Glaser and Strauss (1967) state that it is important in this approach for the research to temporarily ignore all theory until the research is conducted. The reason for this is so that there is no research framework imposed on the findings in order to keep them unbiased.

When dealing with ”a contemporary set of events, over which the investigator has little or no control” (Yin, 2009, p.13), Yin (2009) has stated that qualitative methods are more fit to answer the of ”why” or ”how”. In this specific context, one can ask ”why a certain factor is relevant” as well as ”how does this factor influence...”, therefore this type of research fits well with the scope of this paper. Malterud (2001) states that the objective of this type of research is to explore ”a contemporary phenomenon in depth and within its real-life context” (Yin, 2009, p.18).

Finally, a choice must be made about the type of case study to be conducted. Ryan et al. (2002) presents five types of case studies: illustrative, descriptive, exploratory, explanatory and experimental. Ryan et al. (2002) state that the differences between the five types may not be very clear, but they go on to specify that the intention of the researcher is in fact what determines which typology each case study belongs to. Considering the above typologies, the case study best fits with

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17 the exploratory type. The reason for this classification is that this paper aims to explore the relevance of certain factors, but more importantly the possible impact and influence that they can have on a company.

3. 2.

DATA COLLECTION

Bryman (2003) identifies three methods: participant observation, collection and qualitative analysis of texts and documents, interviews with focus groups. The author also mentions that the methods employed in the gathering and analyzing of data depend greatly on what the researcher is trying to find. Silverman (2000) supports this statement by stating that ”the choice between different research methods should depend upon what you are trying to find out”. To best answer the research questions posed in this paper, this study adopts a case study approach on company Alpha, by using data in the form of semi-structured interviews and analysis of documents. Limited participant observation is also applied. Patton (2002) states that qualitative research has the potential to acquire valuable in depth understanding as well as detailed information on the topic studied. Since the event of ERP adoption in South Africa has already transpired, company Alpha is a good source of data from because it has up to date knowledge of different theoretical factors regarding that it encountered during this event. Therefore, in my opinion, a case study is appropriate for this topic.

Semi-structured interviews were used as the data collection method of this paper. This choice was made as it was structured around main topics while at the same time providing ample opportunity to ask further questions about new evidence that appears during the interview. All interviews were conducted in English. Appendix D contains a table with information regarding the interviews. The questions put to all the interviewees are based on a pre-developed guideline. This guideline outlines areas that the interviewer is interested in. Another advantage of semi-structured interviews is that it allows for significant flexibility in responses. Such flexibility can be very helpful when the interview uncovers facts that were not considered by the interviewer prior to the interview.

The second data collection method, as identified by Bryman (2003), is the analysis of texts and documents. For the purposes of this research study, the researcher was granted access to four documents about the ERP implementation. The first document is the Business Analysis conducted on the South African entities recently acquired by company Alpha. This document contains an executive summary, a “as is” analysis of the current business model and processes of the South

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African entities and a “should be” requirement analysis. The Design Document is the second piece that is studied. It contains detailed solutions designs to most of the processes and functions the implementation of the system is going to affect, such as purchasing, inventory management, sales and distribution, supply chain management, instrument service, etc. In addition to the detailed solutions, this document also presents a data model, SAP conversion tools, SAP Access Changes, and an implementation plan. The Planning Sheet is a schedule dates by which certain tasks need to be accomplished. This timeline is the version that was last used by the team, close to the end of the implementation. The final document presented was the “kick off” presentation of the project. This presentation shows the initial schedule, presents a methodology, a business case, possible risks to the project and so on.

In addition to the semi-structured interviews and documentation, participant observation is also used as a source. Through the experience of working there, information about some factors may become available. Simply by living through the work environment, one could see for example whether the employees are committed to change, whether they are actively encouraged to adopt new software etc. The researcher’s inputs will appear alongside the data provided by the interviewees, serving to reinforce or counter what is presented. Because the researcher was not involved in the implementation process in South Africa however, his experience and input will serve more to reinforce the data gathered through interviews or documentation.

The three methods of data collection serve to enforce triangulation. With three separate sources of information, the results are more reliable and well supported. This concludes the methodology section. The subsequent section builds up on this section and presents the results to the research questions.

3. 3.

ANALYSIS

This section serves to present the analytical framework used in analyzing the interviews and presenting the results obtained from them. This section is very important as it shows how the interview data is analyzed and allows for useful results and conclusions to be formed. Srivastava and Hopwood (2009, p77) claim that ”the qualitative data analyst is constantly on the hunt for concepts and themes that, when taken together, will provide the best explanation of “what’s going on” in an inquiry.” In order to best extract the results out of a set of data, it is important to first select the proper framework used in analyzing the data. For the purposes of this framework, Srivastava and Hopwood’s Practical Iterative Framework is considered.

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”The role of iteration in qualitative data analysis, not as a repetitive mechanical task but as a reflexive process, is key to sparking insight and developing meaning”

[Srivastava and Hopwood (2009), p 76]

Srivastava and Hopwood (2009) claim that qualitative research is, in its purest form, guided by an inductive approach. Inductive analysis refers to “the patterns, themes, and categories of analysis come from the data; they emerge out of the data rather than being imposed on them prior to data collection and analysis” (Patton, 1980, p 306). This idea is also consistent with Glaser and Strauss (1967). These patterns, themes and categories however, are not evidently present from the start. They are shaped and explored according to what the researcher is looking for and according to how the researcher sees and interprets what the data is saying. As a short description, instead of the analysis taking place as an objectivist application of analysis procedures, the process is highly reflexive (Bruce, 2007; Harper, 2003; Mauthner, 2003).

”A loop-like pattern of multiple rounds of revisiting the data as additional questions emerge, new connections are unearthed, and more complex formulations develop along with a deepening understanding of the material. Qualitative analysis is fundamentally an iterative set of processes. (emphasis added).”

[Berkowitz (1997), p 15]

Iteration takes the role of a strongly reflexive process, not as a repetitive mechanical task, and Srivastava and Hopwood mention that it is crucial to sparking insight and developing meaning. Reflexive iteration is basically the process whereby the researcher visits and revisits the data and connects it to new insights. This process progressively leads to a more refined focus and understanding. Patton (2002) has developed three categories of questions aiding self-reflexivity, reflexivity about those studied and reflexivity about the reader respectively. Srivastava (2005) has developed a framework building on the one by Patton. This last and more refined framework comprises three questions to provide the researcher ”with specific reference points to explicitly engage with the data analysis process” (Srivastava and Hopwood, 2005, p 78). This framework is illustrated in the below figure (also shown in Appendix B).

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Question 1 is used in clarifying the lenses (e.g. theoretical, subjective, ontological, epistemological, field) through which the researcher views the data. Question 2 is supposed to connect the previously identified subjective lenses with researcher’s objectives. Question 3 is meant to continually refine insights and sharpen the focus for analysis. This is done by identifying gaps in the researcher’s understanding of what is happening in the case. The reason for this is so that the researcher can go back to the data with a clearer understanding of how it needs to be employed, and begin applying the framework again from Question 1.

This subsection concludes the methodology section. The next section is the data analysis section. Here the results obtained through all three sources of data collection are presented and analyzed.

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4 RESULTS

This section attempts to answer the research questions posed in the introduction to this paper. This section is split into five parts, the first of which presents some information about the company on which the case study is conducted. The second presents what the interviewees believe to be successful implementation. The third and fourth present the results obtained relating to the critical success and risk factors, respectively. Each of these two sections works its way through the list of factors and presents the findings relating to them. The analysis is conducted as per the framework presented in the literature review section. The results obtained from interviews are presented together with comments and additions made from documentation and the personal experience of the researcher in the company. The final subsection explains whether or not the implementation was successful, according to the interviewees.

4. 1.

CASE OUTLINE

The case study will be done on a large, multinational corporation engaged primarily in the development, manufacture and distribution of services and products for companion animal veterinary, livestock and poultry, water and dairy testing markets. It operates in 40 locations around the world and has more than 6000 employees on its payroll. It has made some recent expansions into chemical labs, water testing and human medicine as well (most recently are the acquisitions in South Africa), although these businesses are currently still growing.

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The marketing and selling of its products is handled both directly by the company and through independent distributors around the world. The fact that it has been the global market leader in these markets demonstrates its commitment to sustainable leadership, product innovation as well as attracting and retaining key and qualified employees.

Company Alpha1_{has successfully introduced the SAP enterprise resource planning system}

in most of its subsidiaries. The reason that is it not yet introduced in all its subsidiaries is that the company is aggressively expanding, and thus it takes time until all its subsidiaries can receive the SAP extension from the parent company, and leaves some time to make sure no further problems arise with each subsidiary. After an acquisition, the company first completes its most recent implementation project in whichever subsidiary it was extending the system to, and only then begins the plan for the next entity. The reason for this is to not have too many accounts or processes changing in the parent company systems. Given that the implementation in South Africa was very recent, this allows for fresh and clear view of how this process took place. However, this clarity comes at the expense of somewhat limiting findings with respect to post-implementation problems.

There is at least one person in each department who uses SAP. In departments which are not finance related, there is usually just one person who is responsible for making sure that their data is in SAP. In some cases, this data is simply forwarded to some other contact in another department who inputs the data into the system, however all data goes into SAP. The departments that are most dependent on SAP are Financial Planning and Analysis (henceforth FP&A), General Ledger (henceforth GL) and Accounts Payable (henceforth AP). In these departments everyone uses SAP. In the accounting department (GL and AP) it is used for entries and bookings, while in FP&A it is used mainly for data collection and, on occasion, making corrections. There is also an interface called NEXXUS which is used for obtaining ready reports that are compiled using data from SAP. This addition to SAP helps save time as employees no longer need to look through the data and build the report themselves.

Company Alpha owns entities in South Africa that operate in two of its lines of business. The entity operating in In-House-Diagnostics (further on referred to as IHD) received its SAP implementation a few months ago and was completed on the 1st_{of January 2014. The second entity}

which operates in WLPD (water, livestock, poultry and dairy) started its implementation process only two weeks after IHD and was completed by the end of May-early June. To better understand

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23 some of the interview, the projects for implementing SAP in IHD and WLPD were nicknamed Southern Sun 2 and Southern Sun 3, respectively.

One reason for choosing this company is that it has had previous experience with such implementations and this experience could mean that the data collected is more relevant. The second reason that company Alpha was chosen was that a subsidiary in South Africa was undergoing the implementation at the moment of inception of this study, which would make for a perfect opportunity to study the implementation. The final reason was that I was offered the opportunity to conduct an internship in the FP&A department in the Netherlands office of company Alpha, which would grant me access to the data required for completing this study. The following subsection describes what successful implementation is, according to interviewees.

4. 2.

SUCCESSFUL IMPLEMENTATION

Before going into the separate factors, interviewees were asked to state what they think is successful implementation. Their answers varied a little and some included fewer criteria than others for defining success. However, there is a tendency for them to specify that all data should be right. Meaning that the data should come up in the right format, should be accurate, complete, timely and reliable. There were other specifications mentioned as well, such as employees being able to use the system easily and more efficiently, so as to make the system worth the cost. And a seamless transfer from the old system to the new one:

“Most important of all is to get all relevant data, and not lose anything. We want timely and reliable information to reach the finance directors or whoever the data is destined for. Employees should be able to go about their day-to-day jobs after the system is launched. Not only that, but they should show an increase in efficiency and the data should be more accurate. That’s the purpose of the whole thing after all. Basically it should run smoothly. We don’t want to spend more time than necessary chasing after solutions to problems that should have been fixed at the start, you know?” (Project Manager II)

Important factors for an implementation to be considered a success are that the quality of data should be higher and that employees should be able to use the system efficiently and effectively. In a sense, employees being more efficient and effective with the system implies that higher quality data will be produced. More measures of success are:

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“A successful implementation of the project is when employees and other people who work with the system (like AP department) are happy with it and the system works fine as in no expense reports are lost in the system or for example that no expense reports are not paid on time because the manager does not know how to approve via the system.” (AP Accountant)

Here the emphasis is placed on not losing any data (quality of data) and again on employees being happy with the system.

“I think the most important thing is that you don’t have a gap between the moment when you let go of your old system and the moment when you jump into the new system. There’s always an overlapping time, but it’s always a bit awkward because you don’t know where you take your data form. So that’s important that basically we can kind of seamlessly move from one system to the other and that you don’t experience some daily basis growing pains. Such as not having a function in the new system but you had it in the old system.” (Senior Financial Analyst)

And finally, in order for an implementation to be successful, there must be a smooth transition from the old system to the new one. Also related to this is that the system must function properly, in the sense that there are no missing functions.

In order for the system to be called a success, the interviewees revealed that it must produce higher quality data, no data must be lost, employees should be happy with the system and be able to use it more efficiently and effectively than the old system, there should be a smooth transition between the old system and the new one and the system should be fully functional. The criteria that have been mentioned above are revisited at the end of this section. There it is presented whether or not the implementation was truly successful.

4. 3.

SUCCESS FACTORS

4. 3. 1. EXTENSIVE PREPARATION PRIOR TO IMPLEMENTATION

The first CSF that interviewees were asked about is the planning that is involved before implementation begins. This is the phase where everything about how the project will proceed is decided. It is the first and (according to theory) the most important phase in the whole implementation process. The interviewees unanimously agreed that:

“It all starts here, really. Extensive preparation beforehand makes the implementation easier and is key. Better planning always helps in predicting possible issues. We usually begin

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planning quite a long time before the project implementation starts. You have to figure out what you want the system to be able to do, who should have what access, making scenarios, what consultants we will approach (or if we will approach), what is a likely deadline for finalizing the project and so on. What is really important, is building a sort of roadmap.”(Project Manager II)

This “roadmap” is usually made during the business analysis phase (also called the Definition Phase). The key part about it is making sure that all the current processes that are being done with the old system will be possible under SAP as well. This is done under the “as is” and “to be” analyses mentioned in the business analysis document. The “as is” phase provides a detailed description of exactly what processes and function the current system is capable of, what accounts and transactions they use and what reports it can produce. The “to be” analysis shows what the project team wants the new system to be able to do. The new system must be able to accomplish all the tasks the old system could, but more efficiently. The whole project is then built around this analysis:

“Usually you have business analyses where you look at the current processes. Then you have to basically describe what you want to achieve in the new system, so you know what are the processes that you are gonna put in place. And based on that you do a whole project plan. And after that you go through the different phases.”(OER Finance Manager)

The phases of the development of the project are depicted graphically in a Waterfall Methodology graph. The graph outlines each phase and points out the key points to be accomplished in each:

The design phase is the phase in which most of the technical planning is made. From the graph three steps are visible which relate to the more technical aspects of the system, these are the design document, test plan and data plan. The communication plan is established between the project team, IT team and supervisory team so they are always up to date and everything that is vital is always communicated on time. The training plan was made by the project team and features a schedule of

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training sessions and who would fly to South Africa for how long to conduct the trainings. The test plan was made in collaboration with the IT team and features two testing methods (described later).

The development phase is mostly conducted by the IT team but in close collaboration with the project team. The project team was making sure that all the data required by their respective departments to be able to conduct the day to day business of the company was incorporated in SAP. The SOP and Training was covered by the project team itself with some data received from the IT team.

It is important to note the relationship between the project team and the IT team:

“(…) we had two teams. There was a team of users (project team) and there was a team of, let’s say, IT experts. ‘Cause if you leave the IT experts to it, they will do something that is super refined and top notch, but maybe the users won’t know how to use it. Maybe it has very refined functionalities but maybe that’s not what the users are looking for. So its extremely important from the beginning to sit down and discuss. (…) So basically you draw a massive map of the situation we would want to achieve and you confront the IT guys and ask” how can we do this?”.(Senior Financial Analyst)

When asked about this the IT team lead also confirmed that the phase of gathering all the data needed by the users was time consuming. In addition to taking a long time, this phase was also vital because:

“You can get stuck just because you totally forgot there was this transfer account that’s being used from here and transferring there and then it is not downloading the data properly on the other side and you wind up having data floating somewhere in mid air (or mid system) and when you discover it you are shocked.“(Senior Financial Analyst)

Not having all the data that needs to be transferred from the beginning means having to add it in at a later stage, which is more difficult than getting it right the first time. In addition to the complications of discovering what data is missing and where it is missing from, it also takes time to figure out what is wrong:

“Aside from adding it in, you first realize something is not working, then you spend time looking for the reason. Then you realize it’s because you didn’t add all the data. So all this troubleshooting could have been avoided.”(Team Lead - IT)

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27 The data provided by the interviewees confirms our expectations from earlier literature (Ross, 1999, Aloini et al. 2007, Aladwani, 2001) that early planning plays a crucial role in the success of such a project:

“I would say this is a very important factor especially because the earlier you start preparing yourself, the earlier you are going to brainstorm with other people and come up with issues that could arise in the near future. The later you start, the less issues you are going to predict and the more issues you are gonna find later, after implementation. And that is, of course what you want to reduce. (…) there is no underestimating the power of planning ahead. I would

say it was definitely critical.” (AP Accountant)

4. 3. 2. EXECUTION OF PLANS

Subsequently, the interviewees were asked about the timely and orderly execution of plans. Generally, the answers were split between timeliness and order. It is evident in the methodology the company used that it has an order in which it engages the different phases of the project. The Finance team lead mentioned that the project did not move on to a phase without first receiving the signature of the project team lead on the previous phase. This is supported by the OER finance manager:

“(…) about orderly, you know you are not going to start developing a system if the business analysis phase is incomplete. Again there are some phases that have dependencies, and they need their order. ” (OER Finance Manager)

This and the timeline presented in Appendix E show that the company was committed to the orderly following of plans. The OER finance manager also mentions that:

“If you start with implementing the solutions before the team finishes designing them, you risk implementing a solution that will later be revised, for example. The dependencies between phases are what make this so important.”(OER Finance Manager)

From the responses and graphs, it is concluded that the interviewees find that order is indeed critical for the success of the project.

Timeliness, however, turned out to be more context specific. While generally it was not found to be crucial to the success of the project, there were some situations identified where this was the case:

“Then you have keep in mind business risk, so you schedule the project so you go live at a time when it is not business critical. Usually you are going to warn your customers and

A case study of critical success/risk factors in subsidiaries implementing the parent company’s ERP system