Critical success factors and their
influence on the ERP implementation
process within a Romanian context
Program: MSc Accountancy and Control – Control track Student: Andra Raluca Petrea
Student no: 10622799
First supervisor: Rui J. O. Vieira
Abstract
Purpose
The thesis looks to understand how critical success factors help in the ERP implementation process and also how these factors, help in transitioning from the old informatics system to the new ERP system.
Design/Method/Approach
To answer the research question, the thesis uses a case study approach in which data was gathered through semi-structured interviews with managers and lower level employees that were involved in the ERP implementation process. Information regarding the ERP system was obtained through the use of documents and the analysis of the results was made partly by hand and partly with the help of Atlas.ti.
Findings
For the interpretation of the results, the study uses a framework based on five managerial functions: planning, organizing, staffing, leading and controlling. Results show that only some critical success factors helped in the implementation while others had no influence on the ERP implementation process. For example, critical success factors such as top management implication and the use of consultants contributed to a successful ERP implementation while factors such as reporting level of the managers and the implication of the steering committee had no influence in the implementation process. The study also shows support for factors such as top management implication and training of the management and user, which helped the staff in transitioning from the old system to the new ERP system.
Research limitations/implications
The research was affected by the short period of time spent in the company while conducting the study and by the reluctance that some of the interviewees felt towards being interviewed. Another limitation came from the one sided perspective gained through interviewing only the subsidiary staff involved in the ERP implementation. For a broader perspective, the interviews should have also included some employees from the parent company that helped in the ERP implementation project. Further research should address these limitations and focus on success factors identifiable at group level.
Originality/Value
The value of the study derives from the closing of the gap mentioned by Scapens and Jazayeri (2003) regarding the limited information about critical success factors within a functionally oriented organizational context. Also it is of value for practitioners who find themselves in the search for the proper critical success factors to take in account during an ERP implementation process within a company with a similar context.
Table of Contents
Abreviations ... 4 List of tables and figures ... 4 1. Introduction ... 5 2. Enterprise resource planning ... 8 2.1 Critical success factors throughout literature ... 8 2.2 Measurement of success ... 11 2.3 Benefits of ERP implementation ... 14 3. Theoretical framework ... 18 3.1 The five management functions ... 18 3.2 Contingency theory ... 22 4. Methodology ... 24 4.1 Research methods ... 24 4.2 Collecting methods ... 25 4.3 Case design and analysis ... 27 5. Case context and findings ... 32 5.1 Company context and ERP system ... 32 5.2 Findings ... 35 5.2.1 Planning dimension ... 35 5.2.2 Organizing ... 39 5.2.3 Staffing ... 43 5.2.4 Leading ... 50 5.2.5 Controlling ... 55 5.2.6 Transitioning factors ... 58 6. Discussion and conclusion ... 62 7. References ... 68 8. Appendix 1 ... 72Abreviations
CEO Chief Executive Officer
CFO Chief Financial Officer
CIO Chief Information Officer
CSF Critical Success Factor
ERP Enterprise Resource Planning system
E-ex Financial module of the ERP
H-tz Operational module of the ERP
IT Information Technology
S.A.F.A Pseudonym for the case company
List of tables and figures
Table 1: Critical success factors throughout literature ... 11 Table 2: Interview detailes ... 30 Figure 1: Impact of ERP on management accounting ... 15 Figure 2: Relationship between planning and controlling (Koontz et al. 1980, p. 78)... 19 Figure 3: Contingency framework Morton and Hu, 2008 ... 23 Figure 4: Oranizational chart S.A.F.A ... 33 Figure 5: Chain of command and delegation of duties between project managers at S.A.F.A ... 42
1. Introduction
The present study focuses on the implementation process of an enterprise resource planning systems (ERP). An ERP system is an “integrated computer-based system used to manage company-wide business processes” (Aloini et. al, 2012, p. 484). The financial reasons for which ERP systems are important to a company are noted by authors as Hunton et. al (2003) and Granlund and Malmi (2002) who found that financial performance such as return on assets and return on investment of ERP adopters are significantly greater as opposed to nonadopters. Also Teittinen et. al (2013) has observed that ERP helped not only in preparing the monthly reports but also in implementing a strategic vision of the company while “enabling transparency in controlling subsidiaries” (p. 284). Bradley (2008) conducts a case study where he compares different ERP implementation processes from different firms so to understand what are the critical success factors (CSF) that work within an implementation. But, because each project is different and companies differ, “critical success factors for ERP systems can be expected to differ from a project to another” (p. 178). The present study focuses on understanding critical success factors that work in a functionally-oriented organizational structure so that the results can be of help for practitioners implementing ERP systems in a similar context. The process of ERP implementation is important to study because it impacts the organization in three ways as noted by Bradley (2008, p. 178): the first impact is on the organization as a whole, the second one impacts the employees that have to learn the new business processes in addition to new software and the third impact is on the management as usually these type of systems are not lead by the IT department but by the needs of the managers.
The current study focuses on understanding the factors that help in implementing an ERP system and looks at the impact on the organization and managers as well as the impact that the factors have on the employees. More specifically, the study looks at the critical success factors that come into play during an ERP implementation process and also takes a look on how the factors help the staff transition from the old system to the new ERP system.
The case study contributes to the current knowledge about critical success factors by closing the literature gap mentioned by Scapens and Jazayeri (2003) regarding the need for a more in depth analysis of critical success factors within a functionally-oriented organizational structure. They state that “it would be very useful for future research to study cases of
implementation of ERP systems in companies with a strong functionally-oriented organizational structure” (p. 230). The present thesis contributes by providing a more in depth understanding of how critical success factors help an ERP implementation process. Also the study takes a two way perspective on factors that helped both the management and the lower level employees to finish the implementation successfully and transition from the old system to the new one which can be of help for practitioners facing a similar situation. The academic contribution of the paper is focused on closing the gap mentioned by Scapens and Jazayeri (2003) and as a practical contribution the paper will help practitioners improve the ERP implementing process by considering the way in which the factors should be mixed together. In the case of a company with the same context and same organizational structure, the critical success factors can be used to shorten the implementation process by using the correct factors and not spending time with factors that do not help the ERP implementation.
In relation to understanding critical success factors, the present study used the framework developed in the paper of Bradley (2008) which consists of Koontz et al. (1980) five management functions: planning, organizing, staffing, leading and controlling and assigns to each function two critical success factors that are presented within the case study. The management functions provide a good framework for understanding critical success factors because the functions work interconnected and that gives a holistic approach to understanding how the factors contribute to the implementation process. The second framework used, developed by Morton and Hu (2008) regards contingency theory and the concept of fit between the critical success factors and the specifics of the company. The study will bring more insight into the way in which factors such as top management involvement and the presence of a troubleshooting mechanism influenced the ERP implementation process and will structure each of the factors according to the managerial dimension they belong to. This study offers evidence on how the five management functions proposed by Koontz et al. (1980) can be used within a functionally oriented organizational structure.
The main research questions in the current study are: Which critical success factors helped in the implementation of the ERP system and how did critical success factors help in the implementation of the ERP system within a functionally oriented context? Also how did these factors help the staff transition from the old system to the new ERP system?
For answering these research questions, the case study research method is used. The information needed about the influence of critical success factors was gathered through semi-structured interviews and documentation. Semi-semi-structured interviews were used to understand the perspective of each interviewee. Within each category of managerial functions the interview included a set of questions that helped guide the interviewee towards the factors that were perceived as helping in the successful implementation of the ERP system and how those factors influenced the transition from the old system to the new one.
The structure of the present study is as follows: section 2 takes a look at the literature regarding critical success factors, what is perceived in the current literature as being a successful ERP project and some of the benefits that come from implementing an ERP system. Section 3 regards the theoretical framework that has been used in the research, section 4 deals with the research and data collection methods. Section 5 presents the company context and findings of the research study; section 6 includes discussions and conclusions about the study. The last two sections regard references and appendix.
2. Enterprise resource planning
This chapter will present some of the most important studies regarding critical success factors in ERP implementation and their findings. Also a presentation of prior research regarding the measurement of success will be shown. The final part of this chapter will regard the benefits of ERP implementation presented throughout the literature to understand why it is relevant to study critical success factors and their impact.
2.1 Critical success factors throughout literature
Enterprise resource planning system is a database that “comprises a set of intergrated applications modules, which span most business functions” (Scapens and Jazayeri, 2003, p. 202). The ERP systems “are claimed to have significant implications for accounting and especially management accounting practices” (Scapens and Jazayeri, 2003, p. 202).
The study of Kanellou and Spathis (2013) about the accounting benefits derived from ERP implementation shows relevant information about how the accounting profession is influenced by ERPs:”ERP systems seem to increase flexibility, integrate accounting applications and processes and improve gathering and processing of data”(Kanellou and Spathis, 2013 p. 213)“. In their explorative study, Kanellou and Spahatis (2013) find support for previous studies of Esteves (2009), Granlund and Malmi (2002), Spathis (2006) and Spathis and Constantinides (2004), which show that ERP systems make the task of the accounting more about analyzing and interpreting data without dealing with routine activities such as data entry. Also Kanellou and Spathis (2013) note that after the implementation of the ERP system, an improvement in decision-making process is made and that the financial statements are more accurate.
The studies mentioned above (Esteves, 2009; Granlund and Malmi, 2002; Spathis ,2006; Spathis and Constantinides, 2004) support the idea that ERP systems generate important benefits for the companies that implemented this type of system. But, the implementation of such a system can be a long and costly process (Bradley, 2008) that can sometimes lead to failure of the project and sometimes even of the entire company (Brown and Vessey, 2003).
One of the most important studies regarding critical success factors is that of Bradley (2008) which gives the coordinates for understanding the way in which the academic field sees
these factors. The article of Bradely (2008) is triggered by the author’s dissatisfaction regarding previous work on critical success factors that only give prescriptive recommendation without examining if the practices were in fact used in projects and with what outcome. He tries to determine whether the practices that were recommended in previous literature are in fact useful and lead to a successful implementation of the project. Bradely (2008) finds support for only three success factors: choosing the right project manager, training the employees and the presence of a champion out of ten factors that are presented in the study. Then, he finds little evidence to support the importance of consultants, the role of management in reducing user resistance and for the steering committee. In the last part, the factors that were not supported by the case are presented: integration of business planning and IT planning is not confirmed by the study conducted as well as the participation of the CEO or general manager and the reporting level of project manager. Bradley (2008) notes that because of the differences in each ERP project, the success factors within a specific ERP implementation may not be suitable for different projects.
It is important to acknowledge that there is another part of the literature that deals with failed or abandoned ERP projects. Some examples of failed implementations are presented in the article of Davenport (1998). There we find the case of Fox Meyer Drug where the ERP implementation drove the company to bankruptcy, the representatives of Mobile Europe stated that after spending millions of dollars they had to abandon the implementation. Also the managers from Dell Computers found out that after a long implementation process the ERP system does no long respond to their needs and they have to rethink it. The management of Applied Materials had to drop the project after realizing how many organizational changes they have to make so that the project to be implemented. Representatives of Dow Chemicals stated that the company had incurred hundreds of millions of expenses for over 7 years only to start again from the beginning after realizing that the needs of the company changed in the meantime.
These are all examples of failed processes of implementation. The reasons why ERP systems fail are diverse but the fact that “large sums continue to be spent on ERP implementation projects” (Bradley, 2008, p. 176) causes a need for understanding what went right in the ERP implementation process so to discover the critical success factors that lead to a successful implementation and to use them in other similar cases.
Another relevant study on critical success factors is that of Ram et al. (2013) in which the authors investigates the influence of critical success factors in the ERP implementation. Ram et al. (2013) state that critical success factors may have a direct influence through the output of the system or an indirect influence through implementation. They find that in order for a project to be successfully implemented the managers have to have clear goals and priorities for each stage of the implementation. Also another interesting finding of Ram et al. (2013) research is that critical success factors do not have a role that is limited in the ERP implementation but they also influence the performance outcomes directly. This gives a higher importance in researching CSFs so that to generate both a good ERP implementation and an increase in the performance outcomes. The main problem with the study of Ram et al. (2013) is that the quantitative research method used does not take into consideration factors hard to measure through this method such as customer satisfaction. Nevertheless the work of Ram et. al (2013) remains valid and confirms the importance of CSFs in ERP implementation while shedding new light on the way these factors influence the organization as well.
Table 1 summarizes the main findings of different studies regarding the success factors that were presented throughout the literature.
Author/year
Critical success factor
Pinto and Slevin 1987 Clear project goals; Detailed planning;
Training of management and users; Top management support;
Establishment of trouble-shooting;
Monitoring and feedback against initial plan.
Laughlin 1999 Implication and influence of the consultants;
Teamwork and team composition.
Nah and Lau 2001 Good coordination and communication between the
implementation partners;
Cross-functional ERP core team;
Organizational culture: common values and goals; User training, education and support;
Presents of a champion; Business plans and visions;
Brown and Vessey 2003
Top management engagement in the project not just involvement; Project leaders have experience and the team members are able to take decisions;
expertise;
A satisficing mindset prevails;
Nicolaou 2004 User participation and involvement in system development;
The level of data integration designed into the system.
Motwani et al. 2005 Composition of the project team;
Proper customization and adaptation of ERP package; Management has to give the project top priority; Bureaucratic implementation strategy;
Finney and Corbett 2007
Project manager implication;
Bradley 2008 Using a steering committee to review and control the project;
Reporting level of the manager;
Integration of business planning and IT planning; Presence of a champion;
Teamwork;
Influence of management in reducing user resistance; Influence of training.
Nicolaou A. and Bhattacharya S. 2008
Early enhancements like add-ons and upgrades;
Ram et al 2013 Identify goals and priorities
Training and education High managerial implication
Table 1 Critical success factors throughout literature
There is a wide area of factors taken into consideration when implementing ERP systems. These factors are so diverse because each ERP implementation is different from company to company. As Bradley (2008) states in his article: “Critical success factors for ERP systems can be expected to differ from other projects because of changed conditions.” (p. 178).
2.2 Measurement of success
The next part of this first chapter will try to define a successful ERP system as it is seen by previous literature. So what defines a successful ERP system implementation? What are the general characteristics of a well-implemented ERP project?
DeLone and McLean (2003) present their model of successful ERP system taking into consideration six characteristics: system quality, information quality, system use, user satisfaction, individual impact and organizational impact. The model proposed by DeLone and McLean (1992) has been put to test by other researchers. Because of this, the authors wrote a ten
year update on the article to present the changes regarding the characteristics of a well implemented ERP system that were confirmed by previous literature and practice. The six characteristics will be briefly presented below:
a) System quality
This refers to “the processing system itself” (DeLone and Mclean, 1992, p. 62). It can comprise factors as reliability of the computer system, resource and investment utilization, system accuracy, response time and others. In the updated article of DeLone and McLean (2003) we find that these factors have been tested by other researchers only to find support for every one of them.
b) Information quality
For this the main factor of interest was the quality of the output given by the information system. The output usually refers to reports. The elements that make information quality are measured in terms of output completeness, precision, relevance, clarity and understandability.
c) System use
Another measure of successful information systems is the system use. This refers to the way in which system reports are used by the management and includes the satisfaction of those that interact with it. A distinction was made by the authors between voluntary use and captive users that do not have a choice in this matter. It is important to note this because a dimension like system use is suitable for taking into consideration only for those that have power to decide in this aspect.
d) User satisfaction
This implies the “successful interaction” (Delone and Mclean, 1992, p. 68) of the users with the system. Special care should be taken when looking at this dimension as the user interaction with the system can easily make the project a good one or a bad one. There are cases of ERP projects that have been implemented but rejected by the users thus making them inefficient.
e) Individual impact
Individual impact is a dimension hard to measure because it looks at the improvements of specific departments after the ERP implementation. But the improvement in decision making, a better understanding of the context and other parameters like this can be seen as good starting points for measuring individual impact.
f) Organizational impact
This is of special interest to practitioners that are interested to invest in an information system. The limitation of this dimension is the ability to measure its impact, isolated from the other factors that influence the organization.
All of these dimensions have been proven to work by other researchers such as Chan (2000), and Clemons and Row (1993) which gives the study of DeLone and McLean (2003) great validity. The framework provided by DeLone and McLean (1992) takes into account factors as individual and organizational impacts that are hard to measure through semi-structured interviews. Thus this model is used to better understand the IT systems and what makes them successful giving a broader perception of the topic that is being studied. But because the perceived factors of information system success are not the object of the present research, a simpler model of successful ERP system will be used.
In the article of Bradley (2008) there is a citation by Ernst and Young that revealed the criteria which Chief Operating Officers (CEO) and Chief Information Officers (CIO) consider to be relevant in measuring the success of an information system.
The first factor is the on-time delivery of the project. If the project can be implemented within an acceptable time frame then it has one of the three potential factors for success. The second one is the delivery on budget. The importance of meeting the budget within an ERP implementation cannot be understated as research shows that some projects lead the company into bankruptcy. If the project can be delivered on time and within the budget then it possesses two of the three factors for a potential success. The last one regards user satisfaction. As noted above this is an important aspect of the implementation. The satisfaction of users can make the project a success while the dissatisfaction can make it a waste of money.
To conclude, if the project will be delivered on time and within a budget while satisfying the users then all the three conditions are met for a successful implementation of the project. These three coordinates will be followed within the interviews conducted with the top managers to understand the success of the ERP implementation.
2.3 Benefits of ERP implementation
Kanellou and Spathis (2013) present in their article the main accounting benefits found after collecting questionnaires from 193 companies questioned for the study. The questionnaire was sent to the IT professionals and the accounting employees within each firm. Then, using the framework of DeLone and Mclean (1992), Kanellow and Spathis (2013) interpret the results that concerned the area of accounting. The conclusions of Kanellou and Spathis (2013) show that “ERP implementation is followed by improvements of decision-making process, enterprise integration and accurate financial statements”(p. 228). Another result of Kanellou and Spathis, 2013, p. 228, study shows that after the ERP implementation data is gathered and processed easier and more quickly giving a higher degree of flexibility to the accountants. But it should be mentioned that the study did not reveal a reduction of the accounting personnel, but rather a shift towards more complex tasks. The authors note that “personnel is not additionally reduced because accountants use their time analyzing data and reports instead of dealing with routine activities and data entry” (Kanellou and Spathis, 2013, p. 228). In doing so, the ERP system changes the way in which accountants are doing their job. Thus, they conclude, it is worthwhile for an enterprise to include accounting in its ERP system.
Another important study regarding the accounting benefits of implementing an ERP system is the study of Granlund and Malmi (2002) that looks at the effects of ERP implementation in management accounting. The method used by them is through interviews with 16 employees from different organizations so that “to get a wide and comprehensive picture of the phenomenon” (Granlund and Malmi, 2002, p. 302). Granlund and Malmi (2002) found that forecasting has become more accurate, the information flows are faster thus allowing management accounting to be done within a timelier manner than it was before introducing the ERP system. Also in one of the companies, the ERP implementation drove to the creation of a
new division by enhancing the need for new responsibilities. Thus in an indirect way the system changed the control and accountabilities within that organization.
One of the most valuable information to draw from the research of Granlund and Malmi (2002) is that ERP integration generates both a direct and indirect effect. The direct effect refers to the changes that emerge immediately after implementation (e. g: content of the reports, scheduling). The indirect effect emerges on management accounting when a management practice is changed from the business process due to the implementation of the project. These effects are represented in figure 1 as presented by Granlund and Malmi (2002, p. 305).
Figure 1: Impact of ERP on management accounting
But there are areas where ERP systems did not seem to have any impact as Granlund and Malmi (2002) show. These are performance measurement and budgeting. The reason for this is that companies usually prefer to work with an independent information system for budgeting and for performance measurement. Also the complexity of the ERP systems can block some accounting developments.
The case study conducted by Scapens and Jazayeri (2003) also presents ERP benefits and concludes that the implementation of ERP “led to more team working and grater cross-functional communication and co-operation” (p. 224) in within the company that was targeted. Scapens and Jazayeri (2003) also noted that “the implementation of ERP encourages the routinization of activities so that they can be incorporated within the system”. (p. 225). The most important
benefits found by Scapens and Jazayeri (2003) in their in-depth study of BM Europe are structured in four major changes that preceded the ERP implementation.
The first change observed by Scapens and Jazayeri (2003, p. 227) was that routine jobs were eliminated, because “jobs previously done by cost clerks and other accounting personnel can be computerized”. They claim that the automatization of routine jobs “is clearly an inherent feature of ERP systems, which seek to integrate the various aspects of the business into a single information system”.
The second change found by Scapens and Jazayeri (2003) refers to line managers that have no accounting knowledge. After the ERP implementation, the managers seem to take on more responsibility for their budgets, variances and forecasts even if they did not possess accounting knowledge because they see these responsibilities as their own and not as a part of another person’s duties. This contradicts the study of Granlund and Malmi (2002) which found that non-accountants do not seem to take on more accounting responsibility after the ERP implementation. Scapens and Jazayeri (2003, p. 227) note that “the managers within BM Europe considered their job to monitor their own budgets, to explain the variances and to produce the forecasts – possibly with the help of management accountants”. Thus, after the ERP implementation, tasks that were previously considered to be only for management accountants now become tasks for the management in general.
The third improvement regards the type of information that can be accessed due to the new system. Forward-looking information is easier to collect now because ERP systems facilitate the use of forecasts (Scapens and Jazayeri, 2003). But as noted by Scapens and Jazayeri (2003) the fact that forward-looking information was available “had not significantly affected the information used by the senior management”. (p. 228)
The last change observed by Scapens and Jazayeri (2003) regards the role of the management accountant. The fact that the routine jobs are eliminated by the introduction of the ERP system leads to the management accountant being more focused on providing direct support for business managers. For example the information that can be extracted from the newly implemented system will be interpreted with the help of the management accountant (p. 229).
The need for a study that aims to understand how critical success factors influence the ERP implementation within a specific context is recognized by Scapens and Jazayeri (2003). They state that “it would be very useful for future research to study cases of implementation of ERP systems in companies with a strong functionally-oriented organizational structure” (p. 230) because the authors recognize the challenges that come from breaking rules and routines when implementing an ERP system within a slow changing context as the functionally oriented one. Thus the present study comes to fill in the gap presented by Scapens and Jazayeri (2003) by providing an understanding of the factors that contribute to a successful implementation of the ERP system within a company that has a functionally-oriented organizational structure. This study will take into account the human implications of ERP implementation by understanding how critical success factors helped the staff transition from the previous system to the current one. The understanding of critical success factors within this specific context can bring an improvement in the practitioner’s implementing process. As an academic contribution, the study will focus on the gap mentioned before by Scapens and Jazayeri (2003) so that to close it. Also this can be seen as a starting point for future research in this context.
The importance of the study derives from the two sided perspective which enables a deep understanding of the topic discussed. The first perspective is that of the management regarding the factors that helped the ERP implementation. Analyzing this perspective will help identify the factors that should be taken into consideration when conducting a similar ERP implementation within a different company but with the same organizational structure. The second perspective, that of the users, gives an in depth understanding of what factors help the employees transition faster from the old system to the new one. The user’s perspective on these factors is relevant because they are the ones who interact with the system on a daily basis. Thus, if the ERP system is rejected by them, the entire project can be considered a failure.
Practitioners can use the information provided by the current study to improve their own ERP implementation process and reduce the time needed to transition from the old system to the new one.
3. Theoretical framework
3.1 The five management functions
The results of the interviews will be interpreted using the five management functions that Koontz et al. (1980) identified: planning, organizing, staffing, leading and controlling. This framework has also been used in the article of Bradley (2008) and provided a good way of measuring the impact of critical success factors in the ERP implementation process. Also the five management functions will help synthesize accordingly the critical success factors that helped the staff in the transitioning phase.
Initially the five management functions were introduced by Fayol (1949). The following literature has modified these functions into the version that is used in the present study. The version that will be used in this study is that of Koontz et al. (1980). Koontz et al. (1980) modified the initial framework that was based on the independence of the five functions to a model that takes into consideration interdependencies between planning, organizing, staffing, leading and controlling. It is worth mentioning that because of the interdependencies between these functions a more holistic approach of the ERP implementation process is possible.
a) Planning
Planning is the first management function and it refers to the identification of goals and to the way in which the company intends to attain those goals (Koontz et al. 1980). Objectives or goals are defined by Koontz et. al (1980, p. 79) as being “the ends towards which the activity is aimed” and are seen as the end point of planning. Planning is presented as the bridge that ties the gap from where we are and where we want to go. ERP systems should serve as a tool in attaining company goals. Within the planning dimension the key aspect is that each project has to be meaningful and to serve a purpose. More exactly, goals are identified as “a basic function or task of an enterprise or agency or any part of it” (Koontz et al., 1980, p. 77). The ERP system should help in attaining company goals and not work independently from the company’s vision (integrated business vision).
As Koontz et. al (1980, p. 77) state “planning and control are inseparable – the Siamese twins of management”. Through the implementation of an ERP system, the company is more
capable of attaining control as all the information is stored in one data base making it easier to track specific information. Figure 2 presents the link between planning and control within the organization:
Figure 2: Relationship between planning and controlling (Koontz et al. 1980, p. 78)
Detailed planning of the ERP implementation process and clear project goals are the two critical success factors that will be taken into consideration within the dimension of planning. The research aims to understand the importance that these two parameters have in helping to implement a successful ERP system.
b) Organizing
Organizing is the way in which company resources are used. More exactly providing everything the company needs in order to achieve its objectives (Fayol 1949). This relates to the delegation of authority to a project manager that can coordinate the ERP implementation. The purpose is to give decision-making authority to a person that can make good implementation decision so that the project can be finished in time. Human capital is an important resource of the company and it has to be managed properly. The vision of Fayol (1949) is that a project manager should have subordinates that act as an extension of his personality and these subordinates should help in harmonizing current and future plans. Meaning that the right people with the right knowledge and strength should be chosen to be a part of the ERP implementation team for the
project to be a success. Organizing also refers to the way in which project managers report to the senior managers. Fayol (1949) considers that an efficient reporting order can be attained only if subordinates report to no more than one superior so that unity of command can be reached. This means that in order for the ERP project to move at a constant pace, the project team members should not be pushed to report to more than one superior – that being the project manager. In conclusion the factors that should contribute to a successful ERP implementation are the full-time implication of the project manager and the reporting level of the manager.
c) Staffing
Staffing refers to the ability of the firm to recruit and retain appropriate employees or as Koontz et. al (1980) present it: “Staffing means filling positions in the organization structure”(p. 236). Staffing will serve to understand the views of the staff regarding the implementation and how they dealt with the transitioning from the old system to the new ERP system. Koontz et. al (1980) define two main categories of characteristics that managers have to possess in order to be effective while coordinating a team. The first characteristic is: analytical and problem-solving abilities (identifying problems, analyzing complex situation and solving problems that can appear during the implementation process). The second regards personal characteristics as the desire to manage, communication skills and empathy, integrity and honesty and past performance as a manager (Koontz et. al, 1980, p. 229). It is important to note that in the process of ERP implementation, the staffing dimension includes not only the people involved in the implementation process within the firm but also external parties such as consultants that have supported the process and project managers sent from the mother firm. The selection process for consultants and trainers has to be as strict as the one for the internal team that coordinates the implementation. Errors in selection can lead to a lack of synchronization between the internal team and the external support that can slow down the implementation (Bradley 2008). The factors that will be presented within this dimension regard teamwork and team composition, the implication and influence of the consultant or third parties that come and compensate with own knowledge and expertise and the training of the management and users.
d) Leading
Leading refers to the ability to coordinate people so that together to attain the corporate goal (Bradley, 2008). Koontz et al. (1980) define leadership as “the art of influencing people so that they contribute willingly and enthusiastically toward group goals” (p. 328). The leading dimension will help understand the role of the leaders or champions in the ERP implementation. Koontz et al. (1980) made a distinction regarding the functions that relate to leading in general. More specifically they distinguish between transactional leaders that “work hard and try to run the organization effectively and efficiently” (p. 327) and transformational leaders that have the ability to motivate others, they “articulate a vision and inspire followers” (p. 327). The literature has described the ERP project leaders as “more than ordinary leaders; they are more likely transformation leaders who inspire others to transcend self-interest for a higher collective purpose” (Bradley, 2008, p. 183). For this dimension, factors as top management support and establishing a troubleshooting mechanism will be searched for to understand their importance in a successful ERP implementation process.
e) Controlling
Controlling is the process of steering activities in such a way so the established plans are kept. This will help understand the way in which controlling is used in the ERP implementation so that the initial plans and deadlines are kept. As mentioned before, planning and controlling are closely related. Without proper plans, control is not effective. Because one of the parameters of a successful ERP project is to deliver the system within the budget then also financial controls have to be in place to monitor the way in which financial resources have been spent for the ERP system. Koontz et al (1980) explain that “financial controls, like any other control, have to be tailored to the specific needs of the enterprise” (p. 392). While investigating the factors that help the controlling dimension, the influence of a steering committee has to be analyzed as well as monitoring and feedback against the initial plan.
However, the management functions framework will not be enough considering that there is a need to understand the concept of “fit” between the specific needs of the project and the critical success factors that helped during implementation. Therefore contingency theory is used as a second framework.
3.2 Contingency theory
Contingency theory in the case of ERP implementation refers to the fact that there are no universally best critical success factors that apply to all the ERP projects and make their implementation a success. Contingency theory in this case looks as the concept of fit between the critical success factors and the characteristics of the company (Morton and Hu, 2008).
The purpose of the research is to understand how critical success factors have influenced the implementation of an ERP system and how did they help the staff to transition from the old system to the new ERP system. In this context there has to be an appropriateness of using the correct factors according to the specific needs of the project and according to specific needs of the company. A specific success factor can fit or not in the context of ERP implementation in the company analyzed and so the success factor, can influence or not the ERP implementation process. This fit between success factors and the context in which they have to be applied is analyzed with the help of contingency theory. The results will confirm that some factors did help in the implementation and others did not. This depends on the specificity of the project and specific company context.
For this, the framework developed by Morton and Hu (2008) for organizational fit and ERP implementation has been chosen as a second theoretical framework in the current study. Morton and Hu (2008) use contingency theory within an ERP implementation context and state that “contingency theory posits that organizational effectiveness is achieved by matching organizational characteristics to contingencies” (p. 393). Morton and Hu (2008) continue by defining contingency as “any variable that moderates the effect of an organizational performance” (p. 393). Hong and Kim (2002) state in their article that “the better the fit among the contingency variables, the better the performance” (p. 26). This makes the fit between critical success factors and context of the company all the more important. Figure 3 presents the link between contingency theory, ERP systems and the successful implementation of an ERP system. Morton and Hu (2008) state that “the grater the change the system imposes, the grater the resistance; the grater the resistance, the less chance for implementation success”.
Figure 3: Contingency framework Morton and Hu 2008
As shown in figure 3 the structure of the organization and the ERP system has to be a good fit in order to successfully implement the ERP system. As noted by Morton and Hu (2008) “successful implementation depends on emotions and politics as much as on rational decision-making” (p. 394).
To conclude, this theoretical framework is suitable in finding whether or not the factors structured according to the five management functions make the ERP implementation a success. Moreover it helps understand what factors fit in the specific context of the company analyzed.
4. Methodology
The most important application of case study research “is to explain the presumed causal links in real-life interventions that are too complex for the survey or experimental strategies” (Yin, 2003, p. 38).
This chapter discusses the research methods used and the data collection methods that were applied for the present study. Also details about how the case study was designed and analyzed are provided here.
4.1 Research methods
Yin (2003, p. 13) defines a case study as “an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”. Yin (2003, p. 29) states that “how and why questions are more explanatory and likely lead to the use of case studies”. The appropriateness of the research method is underlined by Ryan et al. (2002, p. 134) “case study usually implies research confined to a single unit of analysis, which might be a single department, company, industry or even country”.
The case study approach is used in this case because it provides the best way to answer the research question from the present study regarding how did specific critical success factors help in the implementation of the ERP system within a functionally oriented context? Also how did these factors help the staff transition from the old system to the new ERP system?
A functionally-oriented context refers to a company that has a stable market environment where little changes and the products that the company produces remain approximately the same throughout the lifetime of the firm. Because of this, changing routines and processes by implementing an ERP project can affect the company and can lead to a failed ERP implementation process because the users oppose resistance and can not adapt to the new system. For this, Scapens and Jazayeri (2003) consider that it is important to look further at the way critical success factors help in the ERP implementation process in an organization with a functionally-oriented context. The case study is placed in a Romanian company that focuses on a limited number of products (mainly measuring water and heating consumption) that do not
change and the company works in a stable market thus making the company compatible for the present study that looks at CSF in a functionally oriented context.
4.2 Collecting methods
The data for the current study is gathered through semi-structured interviews with the lower and upper management and documents that test the accuracy of the facts presented by the interviewees. Qualitative research methods such as interviews and documentary are appropriate to use in this case as Yin (2003 p. 36) showed that they should be used when the scope of the study is “to understand a real-life phenomenon in depth, but such understanding encompassed important contextual conditions”.
The scope of the study is to understand how critical success factors influence the ERP implementation and how critical success factors help the employees in transitioning to a new system. This drives the need for a research method that takes into consideration the subjective perspective of each interviewee. (Ryan et. al. 2002)
The data gathering was made through semi-structured interviews. These are flexible interviews where the questions are there to guide the interviewee towards the point of interest and in the same time taking into account the personal opinions and experiences of the employees (Ryan et. al. 2002). Also semi-structured interviews “allow a series of questions to be asked, but in no fixed order. Additional questions may also be asked, as the interviewer sees fit, to examine associated issues that arise in the course of the interview” (Ryan et. al., 2002, p. 128). The semi-structured interviews are conducted with the employees that had been working in the company at the time the implementation started and work with the system since. Specifically interviews were conducted with the managers that were in charge with the implementation of the ERP system in the financial department and the production department. Also interviews were conducted with the employees that felt the change and went through it so that to understand how they perceived this shift and what helped them go through it.
The process of interviewing was highly time-consuming as time went into both planning and also taking the interviews. Thus it was important to have a set of specific question beforehand so that to be efficient when conducting the interview. The structure of the interview protocol according to the management functions allowed skipping some parts where the
interviewee did not possess relevant information in that regard. For example when asking about the control issues in the implementation, the employees that are in charge with data processing and are end-users of the system can not answer questions suitable for the upper management. Usually, the interviewees were eager to help and responded in a complex way to the questions posed.
Another way of researching is through the use of documentary research methods: finding evidence in reports that sustain the information gathered through interviews. This will give validity to the research and will help in assessing whether the information is correct or not. This is an important second research method as results have to be checked for validity. Yin (2003) states that “documentary information is likely to be relevant to every case study topic” (p. 131) but, he adds, “documents must be carefully used and should not be accepted as literal recordings of events that have taken place”. Thus this research method should be used in combination with other methods as well: “for case studies, the most important use of documents is to corroborate and augment evidence from other sources” Yin (2003, p. 132). The documents gathered for this research were: the ERP implementation manual, reports outputted by the previous information system and reports that can be generated with the current ERP system.
Another important aspect to note is that informal conversations have helped gather important information for this study. The interviewees felt more comfortable speaking about the ERP implementation without being tape recorded. The differences between the facts presented on tape and those presented informally are not significant but add to the relevance of some factors. For example during an informal conversation with one of the employees from the financial department, additional information about the implication of the financial director was revealed. More specifically informal conversations showed that top management put in very long hours to be able to finish this project in time and they made an extraordinary effort, sometimes working 14 hours a day during the implementation. Also when talking to one of the employees from the accounting department, relevant information regarding the relationship between top management and consultants was revealed through informal conversations. The informal conversations helped in gathering extra information about the implementation and did not invalidate the information already presented in the formal interviews but gave more detailed information regarding facts presented in the interviews.
4.3 Case design and analysis
The study of Bradely (2008) was conducted in 8 companies with little focus on the specificity of each ERP implementation. This case study relates with the effects of specific CSFs –as in the case of Bradely (2008) - but only focus on one company so that a more in depth view of the way in which these factors helped can be attained. This is in line with the view of Ryan et. al (2002) about the scope of a case study research: “ the scope of the case could still, therefore, be broad, but the “single unit” focus means that it [case study] is much narrower than […] more general studies” (p. 134). The study of Bradley (2008) can be seen as a more broad study and the intention of the current thesis is to focus the study on a single unit, company, so to achieve a more in depth perspective regarding critical success factors.
The study aims to explore manager’s view about the factors that helped in the implementation process. The second aim is to investigate the perception of the users about the ERP implementation in order to understand how critical success factors helped them to transition from the old system to the new one within a tight timeframe (less than 6 months).
The company (from now on S.A.F.A) where the interviews were conducted is an energy service manager that helps measuring, billing and managing heating and water consumption as well as producing and selling technology based on radio waves. It is based in Germany and has subsidiaries in over 20 other countries worldwide. The Romanian subsidiary focuses on a limited number of products among which is managing energy and water consumption and is the second largest company in the Romanian market for this type of services.
The ERP implementation for the Romanian subsidiary was completed on time (less than 6 months), on budget and users did not reject the system. Hence, the overall implementation of the ERP system was a success according to the criteria mentioned by EY representatives in the study of Bradley (2008). S.A.F.A started implementation in May 2010 and the implementation ended in September the same year. This makes a rather unusual implementation timescale because in the majority of the cases, these types of projects take an average of 6 months to 24 months (Aloini et al 2012).
The energy service company was selected because there is a lack of studies that analyze the critical success factors in the ERP implementation within a functionally-oriented context, fact
underlined by Scapens and Jazayeri (2003). This company was suitable for the present study because it fit the characteristic of a functionally oriented organization: it has a limited number of products that do not change (measuring water and heat consumption did not change in the past ten years), the market is a stable one and the company has specialized departments that report to only one authority, that being the top management. Figure 4 shows the organizational chart of S.A.F.A and will be further presented in the first part of Chapter 5.
The fact that the company is significant in size is important to the study because it makes the ERP implementation process all the more complex and all the more interesting to observe and study. Also because of its size, an important factor becomes the way in which coordination was realized by not only the Romanian subsidiary but also by the parent firm. Last but not least, S.A.F.A has a specific type of ERP system that was custom made for the Romanian subsidiary because of the specific market regulations. Also the ERP system had to be in accordance with the other ERP systems used by other subsidiaries in different countries so that centralized information could be delivered to the parent firm. Because of all these factors the degree of difficulty of the implementation raises and thus makes for a more interesting study to observe.
After asking about the specifics regarding the ERP implementation project, the type of organizational structure and the type of ERP system, the researcher considered that the company was a good fit for the study to be conducted. The access to this firm was granted by the management of the company after the researcher did a six month internship at S.A.F.A in the financial department as a junior accountant. The financial director gave access to several other key participants in the ERP project so that to talk to them and ask for their help in conducting the interviews. After having their approval, meetings with every each one of the persons from the Romanian ERP implementation team were scheduled. There was only one condition set by the company namely that all the interviews had to be finished in two days. Because the time-frame in which the interviews had to be done was so short the researcher conducted 4 interviews in the first day and 6 in the second day. After finishing the interviews another 3 days were spent in the company to observe and gather relevant documents. Transparency was assured as long as the information needed could be printed on paper meaning that the viewing of the ERP system itself in its new from was not made available by the management for this research. This lead to some study limitations as the system and its improvements could not be seen at work. Also, the
management agreed to give out printed versions of the reports that the system can now generate but as long as they would not be scanned and attached in any computerized version of the present study. The reason for this was that all their documents have a digital signature and the parent firm would not allow for their unique signature to appear in other digital documents. Because confidentiality is one of the first promises made to them, the documents will not be attached in a digital format but they are available to anyone who may request them in the printed version.
It is worth mentioning that the ERP system has two different modules: namely the E-ex module for reporting financial data and H-tz for the operational part of the company that relates to the gathering of data which is further on processed into the final heating bill sent to the client. This research looks at the implementation of both modules. This is why the interviews were conducted with people from the financial and operational department.
For the case study, the interviews were taken with 3 people from the top management and 7 employees from the middle management and the staff line that were involved in the ERP project implementation. All the interviewees that answered the question were involved in the ERP implementation and went through the transitioning phase. The interviews for the top management were conducted with the financial director (that was in charge for the E-ex implementation), the operational director (that was in charge with the H-tz implementation), and the general director that supervised the entire operation.
Before conducting the semi-structured interviews, a protocol was developed to help guide the interviews towards the point of interest. The interview protocol was based on the five management functions by Koontz et. al (1980) and it is presented in Appendix 1. The 10 interviews were all held in Romanian and all of them were tape recorded and then transcribed. The following table presents information about the interviews.
Interview No. Interviewee Managerial level ERP Module Duration
1 General Director Top Management E-ex and H-tz 55 min
3 Operational Director Top Management H-tz 25 min
4 Chief of the billing
center
Middle Management
H-tz and E-ex 30 min
5 Account receivable
manager
Middle management
E-ex and H-tz 35 min
6 Employee billing
center
Staff line H-tz 45 min
7 Chief Management
of contracts
Middle Management
E-ex and H-tz 35 min
8 Accounting employee / Bank cash responsible
Staff line E-ex 20 min
9 Account payable
responsible
Staff line E-ex 25 min
10 Customer care
supervisor
Middle Management
H-tz and E-ex 30 min
Table 2 Interview details
However, because the access was assured mainly with the help of the financial director, some of the interviewees felt that they had to present only good opinions related to his implication in the implementation which made the process of analyzing the data complicated. But because the second objective of the study was to investigate the impact of CSF in the process of transitioning, informal conversations with the employees were held and then noted. Also personal impressions about the project were noted in the study. This is where the limitations of this study come from namely the inability of some interviewees to sincerely portrait the ERP implementation process. For example, there was one case where in the tape recorded interview the employee spoke about how easy the transition was and how quickly it went but after closing the tape recorder the person started portraying a different version. When asked why there is a different version in an informal conversation the person replied that he was scared to say the truth because the top management might find out and lose his job. This is the type of attitude that is common in Romanian companies when a person responds to questions and the conversation is tape recorded. This is why I wanted to speak informally with both top and middle management
to see if the formal version would coincide with the informal one. Except for this particular case presented above, all the interviewees kept the same story or only small differences occurred in informal conversations.
After the interviews were over, the transcribing process helped to better understand the context of the firm and to get closer to the information gathered. The interviews were analyzed partly with the help of Atlas.ti and partly by hand. The reason behind this was that the interview protocol was structured in such a way that it was easy to fallow the necessary information by just reading the transcripts but because there was a significant amount of text, Atlas.ti helped to browse faster through it. While transcribing the interviews the information that was considered relevant for the study was translated in English and was saved in a different document. After finishing the transcribing process, the selection of relevant facts needed for the findings was already done. But, because the paragraphs that were translated and put in a different document were now isolated from the initial context, Atlas.ti was used to help browse faster and get to the specific context where the paragraphs were originally placed so that to retrieve extra information if needed. After the paragraphs that formed the quotations in the findings were translated and placed in the correct context, the process of analyzing the information based on the theoretical framework started.
5. Case context and findings
5.1 Company context and ERP system
The first part of this chapter will present broader information about the company where the case study was conducted and about the ERP system they use. As briefly noted in chapter 4, the company, named S.A.F.A, is a service provider for measuring and billing heating and water consumption. The company has its own system of collecting the information regarding heat consumption from the radiators of the clients as well as collecting information from the water meters they install. The information is gathered by S.A.F.A in order to calculate the final bill that each tenant has to pay to the heating and water district for water and heating consumption. This service of correctly calculating the consumption of water and heat is paid by all the tenants of a building. It is important to note that S.A.F.A is not a water and heating provider, but the company just measures the consumptions and transforms them in monetary value. This service of collecting data and transforming gigacalories and cubic meter of water to monetary value is the main product of S.A.F.A from which profit is made. The Romanian legislation forbids the same companies to both provide water and heating and to measure them as well. That is why there are two different types of companies in Romania regarding water and heating. There are the ones that provide the building with water and heating and the ones that measure each apartment’s consumption of water and heating. S.A.F.A provides services for measuring these consumptions
S.A.F.A is the Romanian subsidiary of a German group that has other subsidiaries in over 20 countries all over the world and has been into the measuring of heating and water consumption for over 65 year. The main headquarters is in Germany, at Frankfurt where all the information from around the world is gathered and reconciled. Each part of the world has a zonal director that is responsible for meeting the production targets. The Romanian company has a zonal director that handles Eastern Europe and Austria who has the job of taking care of the subsidiaries and making sure the targets are met. The Romanian subsidiary of the German company has 15 other branches in different cities from Romania that report to the main center in Bucharest which in turn reports to the parent company.
The functionally oriented structure followed by the company made S.A.F.A a good match for the present study. As noted in chapter 4, the company has a functionally-oriented structure, each
department reports to only one person, that being the general director. The company also works in a very stable market and the products of the company never change. The following figure presents the organizational chart of S.A.F.A provided by the general director:
Figure 4: Organizational chart S.A.F.A
The general director of S.A.F.A takes care that the company meets the annual budget and reports to the zonal director. The zonal director reports directly to the CEO of the parent company. The general director has three people responsible for the three main areas of S.A.F.A business: operational director, financial director and sales director. The operational department is in charge with the measuring and processing the information taken from the clients regarding water and heating consumption. These computations and transformations are made with the help of the ERP system, H-tz. The billing center is part of the operational department and is in charge of billing the correct amount of water and heat for each client. The operational department is the main source of turnover in S.A.F.A. The operational director was in charge with the
implementation of H-tz. The chief of the billing center, who reports to the operational director, was one of the key users when the implementation started. The financial department takes care of the accounting for the subsidiary, the monthly financial reporting package that is sent to the parent company and it also takes care of the monthly reports for the Romanian authorities. The financial director was in charge of the ERP implementation process for the module E-ex. The sales department has the job to attract and sign new clients.
The next part of the chapter will present information about the ERP system. The information was taken from documents that were made available by the company. Mostly the information comes from the user manual of the ERP system. The ERP system has two modules: H-tz for the operational part of the business and E-ex for the financial part. H-tz is the module that takes the individual computations of heating and water consumption based on the information contained in the allocators and converts them in individual bills for each apartment. The water and heating consumptions are taken from the radiators with the help of reading devices that use radio waves. After taking the information from the field (the apartments), they are introduced in H-tz and then processed to the final individual bill. The processing is made through an algorithm that takes into consideration parameters such as: the legislative regulations in Romania, the computational methodology made by the developer of the system, the specific technical elements of each apartment, the geographic location of each building and at the end of this process the system gives each apartment’s consumption in gigacalories and then transforms this into monetary equivalent that the client has to pay to the heating and water provider. After this process is over, H-tz is able to output two very important documents: the first one is the individual billing note so that each person knows just how much they have to pay to the water and heating provider and the second one is the invoice for the building administration in order for them to pay the billing service. H-tz has an interface with E-ex which transfers the information regarding the total value of each invoice (including VAT) in order for the accounting department to book the service.
E-ex is the financial module of the ERP system. E-ex has numerous facilities to administrate operations as cash and bank, acquisitions, invoicing sales, assets, account receivables, debt and others. E-ex can generate two types of reports: the standard ones for each of the operations that were presented earlier and also reports for budgets, reports analyzing the
age of account receivables and debt and notifications for dunning process. The customized reports are made to meet legislative regulations regarding reporting for VAT and tax requirements. As noted above, S.A.F.A is a subsidiary of a German company which means that the financial department has to make monthly reporting packages regarding the financial state of the subsidiary and send them to the parent company. This monthly reporting package has seven sub reports. From these seven reports the balance sheet and the profit and loss statement are automatically generated by E-ex and the rest of the five reports are manually filled in by the financial director on a template that is sent by the parent company. The information for the reports that are manually filled in is gathered from several other individual reports that E-ex can generate.
This is how the two modules of the ERP systems work. The next section of Chapter 5 will discuss the findings of the case study.
5.2 Findings
The second part of this chapter relates to answering the research questions. The first research question, “How did specific success factors influence the ERP implementation process?” finds its answers in the following part of the thesis.
5.2.1 Planning dimension
Regarding the planning dimension the critical success factors taken into consideration were detailed planning and clear project goals.
Detailed planning
Detailed planning in the case of S.A.F.A referred to the preparation of all the steps that had to be taken between the moment that the implementation started and the time it was finished. As noted before, S.A.F.A is the Romanian subsidiary of a German company so the process of implementation concerned both parties. When deciding to implement the ERP system, S.A.F.A had full support from the parent company. The general director of S.A.F.A noted in the interview:
