ERP An integrated strategic framework

Int. J. Management and Enterprise Development, Vol. 4, No. 5, 2007

Enterprise resource planning: an integrated strategic framework Sumit Chakraborty Indian Institute of Management Calcutta Joka, Diamond Harbour Road Kolkata – 700104, West Bengal, India E-mail: [email protected]

Sushil K. Sharma* Miller College of Business Ball State University Muncie, IN 47306, USA E-mail: [email protected] *Corresponding author Abstract: The implementation of ERP systems is a complex undertaking with wide-reaching impact on key stakeholders including staff and customers. As many as 90% of all initiated ERP implementation projects can be regarded as failures as a result of changes in scope, prolongation of the project time or simply budget overruns. This paper presents an integrated strategic framework that could be useful for identifying parameters which may help the ERP implementation process become successful. The integrated strategic framework is developed through a real case study implementation. Keywords: Enterprise Resource Planning; ERP; enterprise systems; ERP implementation; technology management; strategic framework. Reference to this paper should be made as follows: Chakraborty, S. and Sharma, S.K. (2007) ‘Enterprise resource planning: an integrated strategic framework’, Int. J. Management and Enterprise Development, Vol. 4, No. 5, pp.533–551. Biographical notes: Sumit Chakraborty graduated with a degree in Electrical Engineering from Jadavpur University, India in 1994. He has working experience in an ERP environment. Presently, he is pursuing his Fellow Programme in Management Information System at the Indian Institute of Management Calcutta. His research interests include ERP, EAI and artificial neural networks in finance. Dr. Sushil K. Sharma is Associate Professor of Information Systems and Operations Management at Ball State University, Muncie, Indiana, USA. He is co-author of two textbooks and co-editor of four books, Dr. Sharma’s research contributions have appeared in many peer-reviewed national and international journals, conferences and seminars’ proceedings. His primary teaching and research interests are in e-commerce, information systems security, ERP systems, database management systems, and knowledge management. He has a wide consulting experience in information systems and e-commerce and has served as an advisor and consultant to several government and private organisations including projects funded by the World Bank.

Copyright © 2007 Inderscience Enterprises Ltd.

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Introduction

Enterprise Resource Planning (ERP) systems may well count as ‘the most important development in the corporate use of information technology in the 1990s’ (Davenport, 1998). ERP is now being hailed as a foundation for the integration of organisation-wide information systems. ERP systems link together entire organisation’s operations such as accounting, finance, human resources, manufacturing and distribution, etc. Moreover, they also connect the organisation to its customers and suppliers through the different stages of the product or the process life cycle (Gulledge and Sommer, 2004; Adam and Sammon, 2004). ERP implementations are usually large, complex projects, involving numerous people working together under considerable time pressure and facing many unforeseen developments. Not surprisingly, many of these implementations turn out to be less successful than originally intended (Davenport, 1998; Adam and Sammon, 2004). Over the past few years, considerable research has been conducted on identifying Critical Success Factors (CSFs) for ERP implementations and IT implementations in general (Tsai et al., 2005; Akkermans and Helden, 2002; Hong and Kim, 2002; Sumner, 1999; Umble et al., 2003). Such factors typically include top management support, sound planning, end user training, vendor relations, project champions, interdepartmental collaboration and communication (Somers and Nelson, 2001; Davenport, 2000; Hillman et al., 2001; Parr and Shanks, 2000; Zrimsek et al., 2001). ERP systems implementations are regarded as costly, time and resource consuming and at times its return on investment is debatable. Despite technologically best software, the implementation may not necessarily yield the desired and expected results (Sharma et al., 2006; Whyte and Fortune, 2002). Several ERP systems researchers have pointed out that as many as 90% of all ERP implementations are either late or over budget (Akkermans and Helden, 2002; Hong and Kim, 2002; Sumner, 1999; Umble et al., 2003). Although, few researchers argue that metrics for measuring success itself may not be an appropriate since success is a difficult construct to identify because it is multidimensional, dynamic and relative (Aladwani, 2001; Al-Mashari et al., 2003; Staehr et al., 2004). While many studies have identified CSFs for ERP implementation or identified the metrics for measuring the success of ERP implementation, this paper presents an integrated strategic framework to identify a few parameters which may help the ERP implementation process become successful (Lee et al., 2006). The integrated strategic framework is developed through a real life case study implementation. Our strategic framework is based on process research that helps us understand successful ERP implementation efforts. In this paper, we describe our integrated strategic framework that is developed as a perfect combination or ‘fit’ of four sets of factors critical for the success of any ERP project – internal enabling conditions, enterprise application domain, technology schema and external enabling conditions. Most ERP initiatives fail due to the inability of the entrepreneurs to recognise the importance of the ‘fit’ and their tendency to concentrate only on a few of these factors and ignore the others (Allen and Kern, 2001).

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Literature survey

ERP systems have been defined as enterprise-wide packages that tightly integrate business functions into a single system with a shared database (Aladwani, 2001; Hall, 2002). They have also been characterised as comprehensive software solutions that integrate organisational processes through shared information and data flows (Mandal and Gunasekaran, 2003). Thus, ERP systems are marketed as a vehicle for integrating the core business activities of an enterprise, such as finance, logistics and human resources, and as a means of overcoming problems associated with so-called ‘legacy systems’. ERP systems are promoted as systems that will improve organisational efficiency through both enhanced information capture and organisational redesign around defined best practices (Gulledge et al., 2005). A review of literature reveals many different research streams. One stream focuses on identification of decision-making variables for ERP selection and implementation (Mabert, 2002; Mabert et al., 2001; Mandal and Gunasekaran, 2003; Markus et al., 2000; Shakir, 2001). Another research stream focuses on identifying the metrics for measuring the successful implementations (Jacobs and Bendoly, 2003). This stream has created further research agendas because the literature on ERP success and/or failure is inconclusive. One of the reasons behind these different views lies in the multidimensionality of the concept of success and the difficulty of developing a single success/failure measurement (Al-Mashari et al., 2003; Bingi et al., 1999; Davenport, 1998; DeLone and McLean, 2003; Gable et al., 2003; Shang and Seddon, 2002). The third stream focuses on identification of CSFs for ERP implementations and risk management in IT implementations in general (Kyung and Kim, 2002; Holland and Light, 1999; Sumner, 1999; Umble et al., 2003; Somers and Nelson, 2001). Although powerful explanations and valuable insights and recommendations are presented in CSFs stream, they seem disjointed and most often one-dimensional. Therefore, we have developed an integrated strategic framework wherein we identify ‘fit’ of four sets of factors critical for success of ERP projects – internal enabling conditions, enterprise application domain, technology scheme and external enabling conditions. A strategic framework is important for ERP implementations since strategic decisions commit resources or set precedents. Prior studies suggested that strategic decisions process would positively contribute to the success of enterprise systems implementations (Sarkis and Sundarraj, 2000; Parr and Shanks, 2000).

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Methodology

This research adopts an interpretivist approach and grounded theory approach. The strengths of the interpretivist paradigm in IS research have been reported in a number of studies, notably Klein and Myers (1999) and Walsham (1995). Grounded Theory (GT) method is a general methodology providing guidelines for data collection, analysis and inductive theory building. The purpose of the GT method is to develop theoretically comprehensive explanations about a particular phenomenon (Glaser and Strauss, 1967). According to Haig (1995), grounded theory is one that is inductively derived from data subjected to theoretical elaboration and judged adequate to its domain with respect to a

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number of evaluation criteria. The main procedures of GT methodology are open coding, axial coding and selective coding. Open coding is basically labelling concepts that represent discrete happenings and other instances of the phenomena. After open coding, data are put back together in new ways through axial coding, by making connections between categories. Selective coding is the process of selecting the core category, systematically relating it to other categories, validating those relationships, and filling in categories that need further refinement and development (Haig, 1995). The GT method has been applied in studies of a number of information systems during the last decade. First, we reviewed relevant literature and analysed a few exploratory case studies. The case study approach has been selected to support analytical rather than statistical generalisation. Case studies capture reality in considerably greater detail and allow for analysis of a greater number of variables. We also utilised our personal experience with ERP in some Indian companies. Our original case data were collected over two years, spanning the entire period from the early start of the implementation of the ERP system to its operational use. We collected information on project success and ascribed causes for it from company representatives in three different instances. The first time, we had interaction with company executives as business consultants. The second time, we sent independent interviewers armed with a semi-structured questionnaire just after the ERP system had gone live. Almost one year later, we returned to discuss our latest insights, based on a comparison of this case with other ERP implementations (Akkermans and Helden, 2002). In line with the above philosophical tradition and its implications in IS research, an interpretivist case study using grounded theory approach (Walsham, 1995) was conducted between 2001 and 2003 as a means of understanding social actors’ meanings and actions related to the implementation and management of ERP systems. The theoretical integrated strategic framework was developed further to examine success factors in context of ERP implementation success.

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Case study background

Company ABC, a major multinational player in the engineering industry, designs and manufactures standard and custom-built products and provides consulting services for corporate clients from over 70 countries worldwide. More than 60 000 employees across the globe generate sales turnover in excess of $8 billion during 2000 alone. The company ABC was one of the leading electrical and electronics engineering companies of India. It was a multinational company having a widespread marketing and distribution network in addition to multiple manufacturing facilities throughout India. The company was operating in various business segments like power, health care, transportation, information and communication technology. During 1998–1999, the market of electrical products was highly price-sensitive and competitive; brand loyalty was low. The switching cost was not significant. The company failed to manage the supply chain efficiently resulting in a low profit margin. The corporate management of the company tried to identify major bottlenecks in Supply Chain Management (SCM) and finally defined clear cut business objectives such as improvement in QoS, reduction in lead time by minimising uncertainty, higher precision in forecasting, standardisation of business processes and product components and stringent cost control. The major critical success factors were identified as vendor management, accurate production scheduling, material

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requirement planning, inventory management, strategic purchase, transport management and financial accounting. Rigorous data analysis was essential for identification of gap in SCM, purchase to payroll process, receivables management and financial accounting. The company decided to implement SAPR3 version 4.0B for its panel manufacturing plant through multiple phases – first sales and distribution, logistics and finance modules and then production planning and maintenance. The general manager of the plant supervised the project. The plant already had invested in IT for materials management in 1993 but that project was not successful and could not satisfy user’s expectations. Initially, the support from the general manager of the plant was low – past experience and lack of knowledge in IT solutions played a critical role in this connection. Moreover, he was not convinced to commit dedicated experienced senior managers for system analysis and business process reengineering. There was no communication from the leader to general users regarding the major objectives of ERP implementation. Most of the people in the ERP implementation team were young executives with a fair knowledge in IT but their overall knowledge of business process operation was not promising. The project team was trying to maintain the project schedule but failed to configure a master database in time. Moreover, the gap analysis between ‘as-is’ and ‘to-be’ process could not produce any innovative concept. Online display of dynamic production scheduling was essential for improving process delays but the ERP implementation team failed to customise the system accordingly. The time constraints, lack of in-depth knowledge and proper support from the consultants were the major bottlenecks. After one year, when the initial phase of implementation was completed, people started to use Material Management (MM), Financial Accounting (FI) and Sales Distribution (SD) modules. Initially, the users did not understand the strategic benefits of ERP; they only used the system for transaction processing. In fact, they were not properly trained and motivated to handle data and software applications. They made serious mistakes in order processing and warehouse management which had cascading effects in the integrated environment of ERP. Initially, the users faced various types of technical problems such as satellite link failure and network jamming. Their productivity was hampered due to a long back-up process (3–4 days). The personnel department was using the HR module from a Peoplesoft package with better features. The resulting use of two different ERP packages for the same plant was a costly option. Users were not allowed to use the internet which affected the global sourcing operation significantly. The master database was not standardised as the task involved massive intelligent coding of data; most of the users were busy in execution of day-to-day activities. The top management of the plant did not commit adequate resources to complete the project successfully. The result was not however, totally negative. Gradually, the plant executives learned to use ERP for business process analysis. The ERP solutions acted as catalysts to improve the business operation in terms of fast transaction processing, accurate MRP and reduction in inventory (about 4%) and lead-time (approximately three weeks). The logistics department could save substantial amounts of money through strategic purchases using ERP. The corporate management of the company could identify the points of inefficiency and financial corruption because of the transparency in information flow. They had a better view of the whole process chain and the goal in cost control and formulation of effective business strategy was achieved within three years.

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Integrated strategic framework

The conceptual framework is, as previously stated, a framework comprised of a number of un-weighted factors focusing on ERP implementation. This highlights the link between the factors and positive outcomes to enhance utility, we developed a perfect combination or ‘fit’ of four sets of factors critical for success of ERP projects – internal enabling conditions, enterprise application domain, technology scheme and external enabling conditions. The risk in ERP implementation can be classified into two categories – technical risk and business risk. The technical risk should be managed through a well-defined technology scheme whereas the other three factors are useful to manage the business risk, which is associated with high investment, time and cost overrun and organisational environment.

5.1 The internal enabling conditions Over the past two decades, the resource-based view of firms has become very important for the study of firms, their processes and their performances. This has been an important development in strategic management, since it produces potential answers to defining question of this field ‘why do some organisations perform better than others?’ (Adam and Sammon, 2004). Resources can be distinguished as tangible and intangible. Tangible resources include financial resources and physical resources whereas intangible resources include assets such as skills, knowledge, managerial capabilities and firm’s reputation. Over the past few years, considerable research has been conducted on CSFs related to internal enabling conditions for ERP implementation. Somers and Nelson (2001) have published a ranked list of CSFs and determined that internal enabling conditions are most important factors in managing risk of ERP projects. Efficient change management is one of the most critical success factors in ERP implementation. It ensures that an organisation and its workforce are ready, willing and able to embrace the new business processes and systems. The change management is a complex process (Figure 1). The change should occur at various levels – system, process, people and organisation. Figure 1

Change management process Explore the need or desire for change in an enterprise

Tentative planning

User’s expectation management and review of change through participation Implement change through efficient project management

Communication of change thereby creating understanding throughout the organisation

Source: Adapted from Kirkpatrick (2001)

Analysis of empathy – probable reaction of workforce, i.e., resistive, neutral or acceptance

Time scheduling, cost budget and project team formation

Final decision making through group discussion

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Communication is the oil that ensures that everything works properly in any ERP implementation since the primary objective of ERP is to integrate various business functions (Akkermans and Helden, 2002). Management’s honest determination to exert and maintain its right to decide within a policy of fairness and openness is essential for successful change management. An efficient leader creates understanding among his workforce through proper communication. The most successful communication strategies can be implemented by a network of project representatives throughout the enterprise. The literature suggests that for many ERP roll-outs, top management support was low at the initial stage and only limited to IT management or mid-level technical specialists (Butler, 2004). After an initial crisis, senior management became actively involved in decision-making process on those projects. However, if the corporate leaders continuously intervenes in the activities of technical experts, the risk of ERP failure may be high (Akkermans and Helden, 2002). Top management can tackle the complexity of ERP implementation by developing a strong project team, which should be a right mix of dedicated resources like technical and business experts. Failure in change management may be the cause of delay in an ERP project. For instance, Indian Renewable Energy Development Agency (IREDA) faced various types of organisational problems in the implementation of as IFS package, which included attitude of the employees and lack of sufficient IT knowledge (Garg and Venkatkrishnan, 2002). Lack of user’s knowledge created different types of operational problems during the post implementation phase of ERP projects and ultimately affected business results. What should be the ideal organisation model for enterprise resource planning? A traditional functionally centred organisation model may not be suitable for ERP because ERP is a tool for supporting end-to-end business processes. Such process management is more than a way to improve the performance of individual processes; it is a way to operate and manage a business. An enterprise that has institutionalised process management and aligned management systems to support is a process enterprise (Hall, 2002). Hammer (2002) defined various aspects of a process enterprise. It is centred on its customers, managed around its processes and is aligned around a common, customer-oriented goal. IT systems are integrated to support end-to-end processes. In the case of Dell Computer Corporation, Ash and Burn (2003) emphasised the role of change management and cultural readiness when adopting web-based ERP solutions. The interrelationship among various CSFs related to internal enabling conditions is shown in Figure 2. Figure 2

Interrelationship among various factors related to internal enabling conditions Communication

Empathy

Management of expectation

Participation Change management

Project team competence

Top management support

Organisation model

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5.2 Enterprise application domain The process of distributing funds for IT demands a vision of how the system will support its core business processes. IT investment is determined by two critical factors – strategic objectives and technology scope. Strategic objectives highlight the trade-offs between short-term profitability and long-term growth. Technology scope is categorised as shared infrastructure and business solutions. There are four distinct types of investments on IT – transformation, renewal, process improvements and experiments (Ross and Beath, 2002). ERP is one of the most popular IT initiatives for transformation. Transformation investments are necessary when an organisation’s core infrastructure limits its ability to develop applications critical to long-term success. Funding transformation creates a basis for long-term growth, but the payoff is not easily and quickly achieved. The value does not come from installing the technology; it comes from changing operations, management processes and cultures. Consequently, investments in ERP demand significant commitment from top management on the basis of cost-benefit analysis. ERP has the potential to be a strategic weapon. It is useful for gaining competitive advantages to disturb, enhance or limit the competitive forces in a specific industry sector. It also improves productivity and performances of an organisation and enables business process management in an innovative, systematic way (Mashari et al., 2006). It is now well understood and widely accepted that the web-enabled ERP technologies – a combination of internet, intranet, extranet and ERP solutions – have the potential to strategically impact traditional business models and processes by aiding generation, storage, processing and distribution of information (Ray and Chakraborty, 2003). Keen’s (1991) differentiation of reach and range for IT platforms provides an adequate framework for integration. Reach ranges from ‘within location’ to ‘all over the world’; range extends from ‘single local support’ to ‘cooperative transactions’. Organisational integration spans organisational boundaries from internal to external process and organisational processes from internal team to external partners. The complexity of ERP implementation is highly influenced by scope of enterprises and organisation boundaries. There are important differences in how modern enterprises have approached ERP technology. Researchers have identified four distinct approaches to ERP – local best of breed, global best of breed, local ERP, and global ERP.1 Understanding these vastly different approaches is very crucial because they determine what the business ultimately can and cannot accomplish with its back-office operations. While a local best-of-breed approach may be fastest to implement, it precludes an organisation from having real-time data on a worldwide basis. It may be suitable for a niche player. In contrast, it is difficult for a global firm like Siemens to manage the global supply chain as a single entity, or to coordinate raw materials and production schedules across plants in different countries. For example, the Bio-pharmaceutical companies that are finding big benefits just around the corner are those that took a global ERP approach. Companies like Glaxo Welcome and Novo Nordisk are creating manufacturing, distribution, procurement, and financial operations that serve not just one or a few countries but rather an entire continent or even the world. They are using ERP software for global supply chain management and are undertaking massive consolidations in distribution, manufacturing MRP and inventory control, and information processing operations for financial accounting and cost control. If the high

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level of perceived benefits from IT integration with ERP is present and the development of an integrative value chain is a high priority, an organisation is more likely to adopt an ERP system (Olhager and Selldin, 2003).

5.2.1 New dimensions of the ERP application domain In this section, we discuss the effectiveness of the existing ERP application domain. Is the existing domain of commercial ERP products sufficient for successful business operation of an enterprise? Strategic grid analysis (McFarlan and McKenney, 1983; adapted from Earl, 1989) is a very useful tool to understand why and how the ERP application domain is critical to a particular firm. The grid is divided into four segments along two dimensions – strategic impact of existing operating systems and application development portfolio. In the support segment, IT is considered as a support activity to improve internal efficiency or productivity of various administrative functions and requires average or below average investment. In the factory segment, IT is crucial for reliable and efficient operation management and the IT budget will always be significant. Also, an IT manager should possess a strong, credible position in the organisational structure. In the ‘Strategic’ segment, the business strategy and the future of an organisation (e.g., the product marketing strategy of a financial service company) are highly influenced by information technology. Investment in IT dominates the capital budget structure of the firm. In turnaround segment, IT is essential for the survival and growth of an organisation (e.g., retail chain management). Now, the question is – which segment is most appropriate to include in the ERP domain? Traditionally, the application domain of ERP solutions is highly recommended for strategic growth and turnaround options. In the ‘factory’ segment, it is also useful for large-scale complex business operations. For instance, a simple, cheap version of ERP package may be considered for support option of the strategic grid. The future series of ERP solutions should target this quadrant in future.

5.2.2 Enterprise Application Integration (EAI) In the current networked environment, companies are moving their business transactions to the web to better service their partners, customers, and employees, which requires a technology infrastructure that connects front-end web servers and (customer relationship management) CRM applications to back-end production systems like ERP and legacy systems (Gupta and Iyer, 2003). EAI is the process of integrating multiple applications, which have been developed and managed independently using incompatible technology. In today’s dynamic business environment, independent applications may not be sufficiently fast or reliable. EAI is a new strategic option for IT management. The basic objective of EAI is to automate the movement of data and process flow in intelligent enterprises. In other words, EAI supports business process integration across the entire organisation, between enterprises. The free flow of information and the invocation of reusable services between applications are the essential requirements for enterprise application integration (Linthicum, 2002).

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EAI is playing a critical role for the growth of the new generation, web-enabled and integrated ERP products (Gable, 2002). To maximise the potential of both supply chain and demand chain system, customers are now demanding new levels of integration and interconnection so that ERP providers link their traditional systems with CRM and SCM software and allow users to access it over the web (Gable, 2002). Customers are now looking for an end-to-end solution that will move them towards creating a value chain that ties everything together. ‘Scope creep’ is one of the most critical factors for ERP roll-outs. No doubt, clear goals and objectives form a CSF for ERP implementation. But, it is really difficult in reality to define the goals and objectives in a clear-cut manner. Hence, ERP initiatives should be considered as new business ventures rather than as traditional IT projects. The interrelationship among various factors related to an enterprise application domain has been shown in following section (Figure 3). Figure 3

Interrelationship among various factors related to an enterprise application domain

Information content of products/services

Information intensity of value chain

Information dispersion

Enterprise application domain

Organisational boundaries

Business intelligence

5.3 The technology schema An ERP implementation effort needs to be positioned and managed primarily in terms of creating new business process designs and secondarily in terms of installing a software system to support those designs. Technically, an ERP system is a family of tightly integrated software modules that share a common database and interface. ERP software attempts to integrate databases, dataflows and systems even across different companies and to streamline operations and reporting. So, a sound technological infrastructure is the heart of any ERP solutions. Technology management involves four different schemas – computing, networking, data and application (Earl, 1989).

5.3.1 Computing schema Computing schema is basically the principal information processing capability of an information system. Computing architectural issues are associated with proper assessment of IT infrastructure against business requirements and a local or global approach to information flow control. For efficient decision making in an integrated business model, the ideal IT architecture for ERP should be a Group Decision Support

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System (GDSS) on a collaborative platform. For instance, the web-enabled ERP system with three-tiered architecture can work on both the intranet and the internet (Linthicum, 2002). Presentation tier or user interface tier interfaces with the users and consists of hardware such as a PC or workstation and a web browser. This may consist of any number of client machines. The functionality or business logic tier provides functionality to the end users through business logic or application. It links the presentation and data tiers. Any number of application servers can be put in this tier depending upon the number of hits and the number of users. The Data tier includes the database holding all the data of the organisation and this is encapsulated from the end users. Any number of database servers can be put in this tier depending on the volume of transactions and the amount of data. Such three-tiered architecture can provide many benefits in terms of database migration and restructuring without substantially affecting the client programmes, front-end modifications, isolation of the database from the front-end clients, reduced database loading, ease in interfacing to other systems or applications, scalability, platform independence and simplified implementation and customisations of the overall ERP system.

5.3.2 Networking schema The communication or networking schema is basically the estimation of wired and wireless communication infrastructure and related hardware platform. Network managers focus on three levels of networks. Local Area Networks (LAN) are used to link local computer configuration whereas national networks often require LAN to link to a local ERP computing scheme. Within a global ERP computing schema, international networks are required to link national networks through the web. For instance, SAP systems are designed as a client-server multi-tier architecture. The networking architecture of SAP allows various communication protocols (e.g., TCP/IP, LU6.2) between the elements of the configuration. Distributed satellite systems can also be used to link individual local systems (e.g., DASS, EIS, LVS) (ASAP World Consultancy et al., 1998). It is a challenging task for network managers to build and maintain a robust, reliable data communication infrastructure that can minimise interruption and downtime. There are various issues involved in networking management, e.g., selection, monitoring and maintenance of communication equipments, and proper evaluation of such technologies on the basis of cost, reliability and accuracy (Donovan, 1988). Reliable system level connectivity is one of the critical success factors for ERP projects. Communication and networking technology is now going through an evolution from a wired to a wireless era. The development of intelligent devices, the internet and wireless technologies is providing new opportunities for RTEs to seamlessly extend critical corporate data to mobile stakeholders. In the era of customer relationship management, ERP should be used to implement process models through proper utilisation of web and wireless communication infrastructure. Optimal sizing of hardware, computing and networking schema is one of the critical issues in ERP implementation, otherwise the cost of ERP project may rise unnecessarily. For instance, one of the major pitfalls encountered in Jindal Iron And Steel Company Limited during ERP implementation was inappropriate sizing of hardware (Garg and Venkatkrishnan, 2002).

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5.3.3 Data schema Data are the most critical element of any information system. The Data schema includes several critical issues like definition and coding of data, data conversion, data loading and data warehousing mechanisms. ERP solutions are complex, integrated software packages, which can be used by companies in different industries through proper configuration. Configuration enables an ERP package to be tailored to support the specific business processes of a company without modifying the base software (ASAP World Consultancy et al., 1998). A master database is the heart of any ERP system. Data on the master record are stored in the form of different views. Data is also stored at various organisation levels; these levels represent the legal and internal framework of a company in which all business transactions are processed. Efficient definition and coding of data is essential for fast transaction processing, transparency of information and standardisation of business processes. It also helps to improve accuracy in information flow and elimination of data overloading (Garg and Venkatkrishnan, 2002). A master database is divided into different categories – material, vendor, customer, HR and general ledger (G/L) accounts (ASAP World Consultancy et al., 1998). Pressed for time, many organisations have failed to define data schema appropriately. For instance, the breaker control switch division of Alstom did not consider some special product models during the master database design. There was no revision of the product manual. The information was not known to the customers, they placed orders according to product manuals and faced problems in timely delivery of products.

5.3.4 Application schema The Application schema is concerned with proper selection of an ERP package, modules and Business Application Interface (BAPI) system. An ERP package should be evaluated with respect to various aspects – vendor support, global and local presence in the market, target market of the package, price, modularity, obsolescence, ease of implementation, cost of implementation and post implementation support (Garg and Venkatkrishnan, 2002). Consultants should also be selected on the basis of skill set, industry specific experience, installation base and financial criteria. An Application schema also defines basic system control in terms of system monitoring, performance measurement and optimisation, optimising the load distribution in the client server environment, time controlled distribution of system resources, various types of system services including backup management, recovery and security of the system. An enterprise may have knowledgeable users and substantial resources, but lack of focus on such basic issues may be the cause of ERP failure. The overall objective is to design a simple, reliable, efficient, secured system with proper customisation and standardisation of the ERP solutions. The effectiveness of technology management should be evaluated by two factors – technical quality of existing information system and business value of the system to its users (Earl, 1989). The technical quality indicates the reliability, scope of maintenance and cost-efficiency of the system. The business value is basically the impact of the system on business, the frequency and ease of use. For instance, if the technical quality and business values are low, the existing information system of an enterprise should be

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divested and an ERP may be an optimal solution in selection of technology platform. Of course, the experts should consider other critical factors such as financial health, cost structure and major business objectives of the enterprise. The interrelationship among various CSFs related to the technology schema is shown in Figure 4. Figure 4

ERP technology schema

Vendor support

Consultant support

Computing schema

Networking schema

Application schema

Data schema

Enterprise application integration

Enterprise application domain

Organisation model

Outsourcing policy

ERP benefits cannot be fully realised unless a strong coupling and reconciliation mechanism is established between technical and organisational imperatives based on the principles of process orientation. ERP benefits are realised when a tight link is established between implementation approach and business process performance measures (Al-Mashari et al., 2003).

5.4 External enabling conditions Although, an enterprise may be capable of managing both technical and business risk, there may be a still chance of failure in ERP implementation since the external environment may be responsible for such failure. External enabling conditions include environmental factors such as communication infrastructure and quality of people in a country. The success of ERP is now associated with a collaborative platform among suppliers, manufacturers and customers through internet. The quality of modern communication and web infrastructure like bandwidth surely influences the success of ERP implementation of a firm (Bubak et al., 2006). The quality of people depends on their education, basic understanding of business management and information technology and educational policy introduced by the government of a country. ERP will not be successful for all countries. A global firm should be highly conscious of external environmental factors when formulating its ERP implementation plan for its business units in specific countries. The interrelationship among various CSFs related to external enabling conditions is shown in Figure 5.

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Figure 5

External enabling conditions Government support

IT infrastructure

Quality of people External environment

Industry competition

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Discussion

In this section, we reflect our research findings in the form of propositions. Proposition 1

The list of CSFs as compiled by Somers and Nelson (2001) and Akkermans and Helden (2002) are not adequate to explain success and failure of ERP implementation projects.

Nelson et al. have considered only internal organisational factors. But, external enabling conditions can play a critical role in ERP implementation. Nelson and Sommers have not considered various issues related to application and networking schema. In this paper, we have tried to integrate four different schemas – computing, networking, data and application. Combination of such technology schema should be essential for successful enterprise resource planning. Proposition 2

ERP is a business process management concept based on technology deployment to increase efficiency, enhance process transparency and economic viability and improve communication with the stakeholders of any enterprise irrespective of size, scale and complexity of business operations.

According to the traditional concept, ERP is suitable for large and complex business operations. Actually, ERP is a business strategy, not only a software application. The new generation of ERP solutions should target small and medium firms to achieve market leadership. Detailed research on market of ERP products can give more transparency in this connection. Proposition 3

EAI is a critical strategic option for ERP in smart, intelligent enterprises.

Modern intelligent enterprises can explore new application domains of ERP through smart web-enabled and integrated ERP products and can sense and respond to fast-changing requirements of customers, business opportunities and turbulent market conditions resulting in high level of organisational agility and unprecedented business value. EAI is the basic building block of modular corporations.

Enterprise resource planning: an integrated strategic framework Proposition 4

547

Outsourcing can offer various strategic, technological and economic advantages to a smart enterprise for ERP.

Outsourcing can play a critical role in an ERP. The success of outsourcing may be controlled by various factors – quality of service provided by vendors, level of outsourcing and various organisational factors like quality of partnership, age of relationship, level of information sharing and product features. The impact of outsourcing on ERP can be an important research agenda in future. Proposition 5

Process enterprise is an appropriate organisation model for ERP.

Process managers should follow some critical steps before ERP implementations – identification of core processes in the value chain; communication throughout the organisation about these critical processes; creation and deployment of measures regarding end-to-end process performance and defining of process owners with end-to-end authority for process design, resource procurement, process monitoring for redesign and improvement. This culture of process enterprises is essential for effective enterprise resource planning. Proposition 6

The strategic fits are causally linked in such a way that they reinforce ERP implementation. Also, there are interrelationships among some strategic fits.

Here, we have shown the interrelationships among various factors of the proposed strategic framework (Figure 6). From this paper, it is clear that all four strategic fits have significant effects on implementation of ERP system. The technology scheme is positively controlled by all four schemas – computing, networking, data and application. Also, it can be observed that there are interrelationships among some strategic fits. For instance, the enterprise application domain should be selected on the basis of internal enabling conditions of an enterprise. On the other side, the enterprise application domain is the most critical factor to define an efficient technology schema. Moreover, external-enabling conditions can influence the internal enabling conditions and technology schema of an enterprise in a significant way. Most ERP initiatives fail due to the inability of the entrepreneurs and managers to recognise the importance of the ‘fit’ and their tendency to concentrate only on a few of these factors and ignore others. Figure 6

Integrated strategic framework of ERP External enabling conditions

Technology schema Enterprise resource planning Enterprise application domain

Internal enabling conditions

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Conclusion

ERP implementations are not only costly, time and resource consuming but are difficult to manage and measure its success. ERP implementation involves many internal and external factors and has a great impact on the organisation in terms of the risks involved and the opportunities provided. In this paper we argue that successful ERP implementation requires an integrated strategic framework. The suggested integrated strategic framework that was tested through a case study provides effective parameters that need to be addressed for successful ERP implementation. The paper also provides theoretical specifications for generating a cumulative body of knowledge in the ERP implementation area.

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Note 1

http://www.urchpublishing.com/erp.htm

Appendix 1

Steps in ERP implementation

Scope analysis

Evaluation of AS-IS process

Decision on TO-BE process

Installation of hardware and networks

Evaluation of ERP packages and selection of consultants

Gap analysis for BPR

Programme planning and formation of implementation team

Customisation and master database configuration

Data uploading and test runs

System monitoring, analysis and performance optimisation

Migration to the new system

User training