Thirty years ago, companies started to develop software to automate their business functions. Enterprise Resourcing planning (ERP) evolved from Material Requirement Planning (MRP) systems which were created to support inventory functions. MRP system later expanded to support manufacturing tasks, then merged with accounting systems to become ERP software (Jutras, 2011).
Enterprise Resourcing planning ERP is software package to integrate internal and external company’s business functions such as accounting, supply chain and human resources (Wong, Scarbrough, Chau, Davison, 2005). (Typical functionality is summarised in Figure 3.1).
Figure 3.1: Module Functionality Overview of an ERP System, Source: Adam & Sammon (2003).
The implementation of ERP consists of all tasks needed to achieve the ERP, start from getting the software and hardware until working properly on that software. ERP implementation goes through interconnecting phases. Those phases start from gathering all information about the current business process and applying that on the software, then testing phase to ensure the software is working accurately. Furthermore, ERP phases like any project may be execute sequentially such as business analysis should come before business setup or may be overlapped with each other such as user training can start at same time with business analysis (Wong, Scarbrough, Chau, Davison, 2005).
ERP software is installed in a centralised database to be available to all company’s departments which all information can be accessible at anytime from anywhere. Moreover, consolidate data in one single installation can increase data integrity, avoid data redundancy because the main function for the software that to prevent the duplication. ERP has built based on standard business process which can improve internal business functions for the companies apply the ERP software (Zhang, 2005).
3. Research Methodology
1. Primary research:
The primary data for this project was collected using the questionnaire. The questions focused on the implementation cost as a main factor involved in the ERP implementation. In addition the questions tracked other factors can hinder implementing the ERP software such as business analysis, management, technologies and training. The questionnaire sent via emails to over than 140 respondents from different companies providing ERP implementation services, 82 respondents answered the questionnaire. Moreover, the sample selected to represent various regions over the world such as the US, the UK, the Middle East and India. Also respondents were chosen in random from many levels such as project managers, business analysts and pre-sales specialists to collect different ideas from different positions.
2. Secondary research:
The main source for secondary data collected which studies conducted in the same subject. Those research contain data about most recent reasons can fail ERP as well as case studies in many companies such as Hershey Foods Corporation. Also secondary data collected from:
A. Internet: Sites of all ERP provider where can find updated information about the ERP products such Oracle and SAP sites. Also some sites include articles about ERP failure reasons.
B. Books: which contain basics information about ERP software and implementation methods.
C. Newspapers and business journals.
1. Findings from the secondary research:
Companies spend the money for implementing the ERP software to automating their business which can accelerate the process time. In addition the main target of ERP software that to integrating business functions such as supply chain functions with accounting functions (Mehta, 2010, Davenport, 1998). Moreover after the supplier delivers items to inventory department the next step is to collect the money from the accounting department. Therefore, all information about quantities delivered and accepted inside the store should be shared and secured to the accounting department before pay the money (J.Umble, Haft, M.Umble, 2003).
Although, ERP provides a significant improvement, there are frequent studies indicating that companies stopped using the ERP or cancelled implementation task due critical problems faced during the business analysis, training and testing process (Hawari, Heeks, 2010). Consequently, from 50% to 75% of the ERP projects are ended (Hawari, Heeks, 2010).
Contrary to expectation in current study hypothesis that the cost is the main cause hindering implementation of the ERP software, this study found there were other significant factors than the cost. The first and substantial factor which can prevent the ERP implementation is the business analysis phase. Because of company’s business process unclearly, the implementation of business functions on the ERP software becomes different than the original needs. The second factor can fail the ERP implementation is the management in consultancy companies who lead the project as well as the companies who apply the ERP software. The former are hiring poor project managers which can underestimate the scope, size and complexity of the project and the later have top management which not committed to applying the ERP software (J.Umble, Haft, M.Umble, 2003).
Also, turnover of project personnel such as project managers, consultants and employees in the customer site after the project started which lose key staff experienced with the project and may be the new staff can request more changings (Markus, Axline, Petrie, Tanis, 2000). The third factor is inadequate training due users did not get enough practice on the new software which affects the operation of the ERP (Ligus, 2007). The cost of ERP implementation comes lately as a factor might fail the ERP implementation (Ligus, 2007).
According to Aberdeen group (Jutras, 2008) the average total cost for ERP implementation is $366.583 for company size under $50 million and 35 average users, which including software licenses cost, implementation services cost and maintenance cost. The last factor can hinder the ERP implementation is the hardware and software technology. Moreover, technologies have been changing rapidly which means that the current hardware and software should sustain the upgrades and need new installations. As a result, more upgrades can reflect miss integration with other systems or data loss as well.
2. Findings from the primary research:
Firstly, the participants were asked about the cost elements can fail the ERP implementation, 55% of respondents agreed that the software costs are too high, followed by strongly agree, disagree, 33% and 12% respectively. Moreover, the second element is the hardware cost, 51% respondents agreed that the hardware cost is too expensive. While, 34% thought the cost is not expensive. In addition, for the third element, it appears the respondents were distributed equality which 49% agreed that the upgrade costs too high and other 49% disagreed with that element.
Also, for the training, 59% of participants disagreed that training cost is too high. However, 33% agreed that the cost is too high. The last element is the cost of skilled employees, by combining answers of strongly agree and agree, the result show that 81% of the sample believed that companies need to hire skilled employees with high salary.
Regarding to the next question, about 91% respondents opposed that the software is difficult. In addition, 72% thought that unskilled employees might fail the ERP implementation.
As far as the third question whether the ERP implementation influenced by the technologies, answers almost distributed between agree and disagree for all elements that software updates, hardware Obsolescence, software Incompatibility and integration fails with other third party applications.
In terms of question number four, this finding was unexpected and suggests that the business analysis factor is substantial for the ERP implementation failure where 80% of respondents answered that customers do not deliver enough or wrong information about their business process. Also, 92% thought that business processes are not clear in the company which reflects wrong implementation and 90% of the sample concerned that more changes during implementation time could effect on the ERP implementation.
Another important finding was that largest set of significant respondents agreed with the management is the most important factor could hinder the ERP implementation where 97% of respondents said the lack of top management commitment had negative consequence on the ERP implementation and 98% believe that inefficient project controlling could prevent the ERP implementation.
1. Discussion explanation:
Based on results indicated from the primary and secondary research, there are five common factors failing the ERP implementation. Moreover, this research reveals that inefficient management is the first and most critical factor. Because of companies assign the project to staff members do not have enough information about current ERP characteristics or without defining company requirements. As a result, poor ERP package will be selected (Ligus, 2007). In addition, 97% of respondents agreed that the lack of top management commitments have an effect on the ERP projects, owing to the fact that, the top management delegates the controlling to the lower level, consequently, conflict of communication between the company and consultants can be happened. Another important factor is the business analysis phase. Due to business processes are unclear, more changes during the implementation process will be required.
Apart from the business analysis factor, consultancy companies are not providing experienced consultants or the turnover during the project because the salary of experienced consultant is too high or they want to reduce the project cost. Based on the result collected from the primary research, the cost factor came as a third reason has an effect on the ERP implementation. Whereas, the finding from the secondary research indicated that the cost factors is the last reason might prevent the ERP projects. Because of companies can pay to get more benefits of the ERP software that can improve their business processes and services. This means that the cost.
The next factor might fail the ERP implementation is the training, 91% of respondent disagree that the software is difficult and the reason might affect the ERP implementation that companies hire unskilled employees. Consequently, they cannot use or understand the software. Also, (Ligus, 2007) believes that companies attempt to save dollars by hire inadequate resources or working on overtime basis. As far as the technology factor, results collected from the primary research spread equally between agree and disagree. Due to the fact that companies do not upgrade the ERP software frequently, they did not face problems with the software updates and the hardware.
2. Limitation on research:
• Number of samples did not represent all countries fairly.
• The questions did not mention company’s business size, which could effect on answers.
• Questionnaire did not deliver to all specialists’ equally.
• No more information about the ERP implementation costs for all products available which can compare between them.
• No more studies about ERP products and technologies for last two years in comparison to two years earlier, which can measure weather the software and hardware improved.
1. Conclusion explanation:
The aim of this study to examine whether the cost is a major problem can hinder implementing the ERP software. Findings show that there are other critical factors can prevent the ERP implementation which can be summarised from the most critical to less critical factor as poor management, unclear business process then the cost factor came as a third reason can hinder the ERP implementation then inadequate training and the last factor is hardware and software technologies. But with more analysis for the output which can explore chain of factors can affect each other.
Owing to poor management, unskilled managers will defect the ERP project and companies should pay more salaries to hire skilled managers. As a result, poor ERP will be selected. Moreover, the problem started from the cost of hiring skilled managers. In addition, Due to consultancy companies want to deliver the implementation services with low cost to compete with other companies, they hiring inexpert consultants because of the salary. In conclusion that, the cost is the major factor can hinder implementing the ERP software but with indirect consequence.
Companies only installing a hardware with ERP software, but are in fact, changing the culture of management and improve the business process are essential before implement the ERP software (Davenport, 2000). Regarding to the primary research, there are some points need to mention in the future:
• Number of samples should represented many countries based on some factors such as number of software usage, area and business volume. Namely, the US should represented by at least 520 respondents, 52 states*10 samples.
• Business size should be indicated in the questionnaire. The need of software varies from small, medium and large business. In addition, employee skills are difference referring to the business size. Also, medium and large business size can pay more for the ERP software than the small business size.
• Questionnaire should be targeted the specialization. Information available to the sales specialists is about prices and they do not have more information about the business or management problems which can be collected from the project managers and consultants.
7. References and bibliography
Adam, F. & Sammon, D. (2003),The Enterprise Resource Planning Decade: Lessons Learned and Issues for the Future. Idea Group Publishing: Hershey.
Ada,W., Harry, S., Patrick, K., Robert & D., (2005). Critical Failure Factors in ERP Implementation.
Ligus, G., (2007), 12 Cardinal Sins of ERP Implementation. Rockford Consulting Group LTD. IL.US Jutras, C. (2011), An ERP history. Retrieved from (http://www.mbtmag.com/articles/2011/08/erp-history-lesson)(23 Aug, 2012).
Markus, L., Axline, S., Petrie, D. & Tanis, C. (2000). Learning from Adopters’ Experience with ERP Problems Encountered and Success Achieved. Journal of Information Technology. 15(2). PP 245-265.
Mehta, A. (2010), A Study on Critical Success Factors for Successful ERP Implementation at Indian SMEs. Dissertation for Master of Philosophy in Management.
Muscatello, J. & Parente, D. (2006), Enterprise resource planning (ERP): a post implementation cross-case analysis, Information Resources Management Journal, Vol. 19 No. 3, pp. 61-80.
Parr, A. & Shanks, G. (2000), A model of ERP project implementation.
Journal of Information Technology 15(2). PP 289-303.
Shanks, G., Seddon, B., Leslie, P. Willcocks (2003), Second-Wave Enterprise Resource Planning Systems Implementing for Effectiveness.