A Three-Step Methodology for ERP

Authors

Dr S Ahmed Abbas, Ruben Pinedo-Cuenca, Zeynel Badak, Prof Munir Ahmad. Teesside Manufacturing Centre, School of Science and Technology University of Teesside, United Kingdom TS1 3BA Email: [email protected]

Abstract

Enterprise Resource Planning (ERP) has become increasingly relevant to small and medium enterprises in recent years, as enterprise software becomes easier to use and cheaper, and as managers become more aware of the need to integrate their operations. The University of Teesside, in northeast England, has been undertaking ERP related projects with companies for several years, and has developed a methodology for optimum implementation of ERP using its TIE (Totally Integrated Enterprise) concept. The 3-Step approach consists of Consensus, Homing-in, and Implementation, under the acronym of CHI. The approach recognises that success in ERP entails issues of operational procedures, organisational culture, business processes, internal communication and relationships, along with technical skills and readiness. The methodology puts together management strategy workshops, detailed investigation of operational functions, and carefully planned, but realistic, implementation. This paper gives an update of the methodology and presents illustrative case studies.

Origins of this research

The University of Teesside, located in northeast England, was provided with funds by the European Union in 2000 to encourage small and medium sized manufacturing companies in the region to take up computer-related technologies and improve competitiveness and productivity. The project team visited around 80 companies over a period of 15 months to assess their situation in this regard, and spoke with owners and senior managers. Several assignments were undertaken, ranging from a few days of diagnostic work to several weeks of requirements analysis and pilot implementation of systems. The project team found that while some small organizations were clearly laggards in take-up of new technologies, quite a few were familiar with the use of specific tools such as CAD and CNC. Many used PCs comfortably, with LANs linking the organisation internally, and external communications in place through emails and the Internet. Word processing and spreadsheets were in use, and some utilized simple database tools, project planning packages, and accounting software. Despite this, in many cases top management of the company expressed concern that there seemed to be no discernible overall benefit to the business through the use of these technologies. So, although drawings may have been produced faster using the CAD system, or the machining may be quicker using CNC, the throughput across the factory as a whole was no better. In fact, many commented that they were overwhelmed with information, paper or electronic, and that they believed there was a vast amount of duplication and repeat work. Furthermore, although they might be using well regarded financial packages, management could not be confident that the figures for gross margins or net profitability were trustworthy. This was because the data they were handling was not accurate, and most probably not integrating all the various elements that made up the bottom line.

1 This observation stimulated the University team to focus more and more on integration aspects rather than concentrating on “point solutions”. What followed was that we started adopting holistic rather than piecemeal views, and then, with increasing direct and practical, on-the-ground, case experience with companies, it became clear that we must lift the general approach from the purely technical to incorporate organizational, procedural and cultural issues. All this should not come as a surprise to researchers and practitioners in operations management. Indeed, the main author (Abbas, 1998), has written about this from personal experiences with enterprise integration several years ago, and, more recently, others such as Wallace and Krezmar (2001) have been vigorous in emphasising the difference between Enterprise Systems (ES) and Enterprise Resource Planning (or ERP). TMC (Teesside Manufacturing Centre) was set up to amalgamate the manufacturing industry related activities in the University of Teesside’s School of Science and Technology. A key element of its approach is to cover operational management issues as well as technical, and the project staff and researchers are involved in activities connected both with technological PhD investigations and with MBA programmes. The main feature of our work is to undertake ongoing case work with companies, and to do this in conjunction with developing a methodology that could be used as a blueprint, or at least a guide, for organizations embarking upon programmes of change using enterprise-wide systems. The companies with whom we work in enterprise integration have ranged from small family owned concerns (35 employees) to substantial medium sized organizations (500 employees), with some being totally independent and others being subsidiaries (though with a fair degree of autonomy) of multinational corporations. This paper describes the nature of these investigations, updating the activity reported previously (Pinedo-Cuenca R., 2004; Abbas A, 2005), and using actual experiences with different companies to illustrate operation of the methodology being developed.

Towards TIE - Totally Integrated Enterprise

We have observed that the main issues regarding adoption of ERP systems among SMEs are the lack of education on such systems; inability to change; and unwillingness to invest both in systems and in people. These are the three key factors indispensable to embed an ERP system within any organization. For that reason, when our TMC team from the University meets a company for the first time, the depiction shown in Figure 1 is used to illustrate powerfully the idea of the whole enterprise needing to work together. A contract is tracked through the various functions in the company, and, if any one particular function fails to perform, it is clear that the performance of the organization as a whole will suffer. That is the essence of the message conveyed to senior management. As a fundamental principle, and different from many other approaches, the TMC team does not usually accept an ERP project unless the Managing Director, or another top-level manager, is directly responsible for (“championing”) the initiative. The reason behind that is that no ERP system or software package can change an organisational culture without concerted efforts from the top management (O’Leary D, 2000). It is essential that top management buys into the project and secures enough resources and empowerment to change key processes. As Davenport stated (Davenport T, 2000) “what’s really important and difficult about Figure 1: The TIE Concept ERP systems is the dramatic change they bring to a business”.

2 The objective in the early meetings with companies is to provide a holistic, but realistic view, about the capabilities of ERP systems, project risks, contributions and steps to follow. It is emphasised that ERP leads to different types of organisational requirements, roles and responsibility redistribution, new knowledge requirements for people involved in the process and a new knowledge structure in the organisation (Lee Z. and Lee J. 2000). The following issues are highlighted: . Enterprise systems require completely different approaches compared with “point” solutions that can be dealt with by individual departments. . A common data base is used, ie all organisational functions interact with the same information. . Emphasis is on the organisational functions, not on the IT system – the aim is to make the functions perform more effectively, together. . Bottlenecks will occur unless the different functions are synchronized, both the technical systems and the business processes. . ERP means that the company is involved in a programme of change, fundamental, cultural and deep rooted and long term in nature. . ERP systems are not going to solve your problems, but it is going to help you to identify them and take more accurate decisions. Various methodologies have been developed that provide a framework and discipline for organizations when undertaking ERP (Davenport T, 2000; Wallace F and Kremzar H, 2001; O’Leary D, 2000; Robinson, P, 1998; Sandoe K, 2000, Gulla A and Mollan R, 1999, Curran A. and Ladd, A 1998). Whilst consultants and researchers understand fully the need for such disciplines, often there is a problem in communicating the importance of this to companies, at the outset when senior managers are contemplating ERP and setting down their plans. Furthermore, once a programme of ERP has commenced, it was found primarily that implementations suffered from transferring and balancing the knowledge between internal and external parties involved in the process of embedding the system in the organisation, as “the key people staff are hired away by the company’s competition, leaving people unfamiliar with the implementation to manage it” (Ferranti, M 1998). Moreover, it often happens that key technical people are diverted on to other tasks, or management distracted by operational issues. These problems can be dealt with if seen in the overall context of an implementation framework, because then the urgency may be recognised and solutions identified. Furthermore, a strong sense of “who we are” is required, as many of the problems in ERP projects have arisen from companies thinking they wanted to be an integrated firm, but backing away from it when the real implementation become clear (Davenport, T 2000). A clearly defined phased approach is attractive to an organisation that has some doubts and may be viewing the heavy commitment required for ERP with trepidation, by aligning the organisational strategy, structure and processes and the chosen ERP system from the very beginning of the implementation. The three phase methodology described in this paper is structured such that a company can review and withdraw from the process at the end of Phase One, or at the end of Phase Two. It does sometimes happen that management realises at some point during the initial phases that an enterprise system was not appropriate for its needs, or that the organisation could not realistically manage the effort and did not have the necessary resources. For example, it may have emerged that a best of breed solution would be more suitable, with software linkages being specially created between the key applications. So any potential financial loss would be minimised. The first phase is concerned with establishing a Consensus in the management team, as to the aims and the priorities of the change programme. The second phase is concerned with Homing-in to the organisational requirements and identifying possible solutions. The third phase involves the actual Implementation of systems and new processes, and their embedding in the organisation so that they are established for the long term. The acronym CHI is used to encapsulate the three phases.

3 Phase 1 in the Three Step Approach

Phase 1 is intended to build a consensus amongst the management as to the most important issues facing the company, and therefore what any enterprise-wide systems must tackle. Thus, this phase aligns the strategic with the tactical and operational levels of the organisation and analyses the impact of improving the current legacy information system across the organisation. Such an analysis will indicate the amount of organizational change required across the different functional areas of the enterprise, as legacy information systems encapsulates existing business process, organisation structure, culture and information technology (Youngul, K 1997; Adolph 1996; Bennet 1994; Johnson 1992). Most researchers and practitioners (Pinedo-Cuenca, 2004; Abbas, 2005; Slevin, D P, and Pinto, J K, 1987; Summer, M 2005; Kent S, 2001; Davenport, 2000, Robinson P, 1998) agree that this phase is a key determinant for success or failure in enterprise-wide implementations as it consolidates management support, clarifies strategies, objectives, expectations and highlights the commitment required across the whole organisation. In order to achieve the above, three ½ day workshops are held in the company and are attended by the whole management team plus selected technical and administrative staff. A software package known as AGREE 1 is used at these sessions, and a screen projector displays images that help focus the proceedings on the key issues. The Critical Success Factors (CSFs) for the company are identified, then the Key Business Processes (KBPs) that would affect the CSFs. A matrix is drawn up depicting the relationships between the KBPs and CSFs. Participants next decide how electronic based systems might impact the performance of the KBPs, on a scale from A (high impact) to E (no impact) as shown in Figure 2.

Figure 2: CSFs Vs KBPs The information contained in this can be used in many ways. We may, for example, identify the KBPs that show the highest count against the CSFs, check whether they also carry a high Impact rating (pivotal KBPs), and then conduct in depth brainstorming on those KBPs to look at possibilities of improvement. These workshop sessions are conducted in a convivial atmosphere with a good deal of interaction between the participants. For brainstorming, individuals write their ideas on post-it notes and attach them on to walls, and they go on to create clusters and affinity groups. The team then assigns headings for these clusters, and these headings are used as the CSFs and KBPs that are actually recorded in the matrix.

1 AGREE (AGreed Route to the Electronic Enterprise), software package used under license from the National Engineering Laboratory, Scotland, part of the German TÜV.

4 It is invariably found that companies participating in these sessions so far react enthusiastically. Some of feedback received includes comments like: “We have never previously had the opportunity to discuss these kinds of issues before”. So obviously a spin off benefit is that the exercise is good for team building. Overall, though, it serves to reinforce the idea of the whole enterprise working together, holistically. People start to appreciate better what other organisational functions do, and also that if one element in the organisation fails to sign on properly, the whole programme of change will suffer. This exercise provides a great deal of information for the next phase, which is concerned with developing the requirements specification and identifying the possible solutions.

Phase 2 in the Three Step Approach

Experience has shown that the first phase occupies between 4 and 6 elapsed weeks. Presentations are made to the company and a written report delivered. Feedback and discussions take place and a plan for Phase 2 is finalized. This can last between 8 and 15 weeks, depending upon the size of the organization and the agreed scope of the work. During the second phase the Cultural, Organisational and Technological (COT) analysis developed by TMC is used. The COT analysis investigates the level of change required from the organisational, cultural and technological point of view, in order to achieve the overall mission of the organisation. The key activity in this phase is process mapping, the technique quite commonly used nowadays to understand the information flow in an enterprise. A two man team from TMC conducts intensive meetings and interviews at the company, covering each function of the organization, guided substantially by the findings from Phase 1. These are aimed at providing a full picture of the individual business operations and the information interfaces across the various departments, or, in other words, organisational and technological factors. Thus, the management team begins to see a picture of the overall systems requirements and also the organisational procedures that should be taken into account, and perhaps may need to be modified, for the enterprise systems to operate effectively. In addition to process mapping, other techniques are used to obtain holistic views of an organization. These include, for example, generation of input-output transformation diagrams, such as shown in Table 1.

Table 1: Input-Output Transformation diagram. Projects & Engineering Project Procurement To From Inputs Operations Outputs Whom Document BOM PO Supplier Control Forecasting Project Customer Suppliers Planner Purchase specs material Weekly Buyer delivery Stock Delivery Track schedule Expeditor schedule Schedules Stores Deadlines Monitor Quality Material Inventory Assurance delays Contribute Project Material Planning Projects Budget to project costs plan

5 Another useful technique that we use at this stage is the Importance- Performance Matrix. In this technique we examine the Critical Success Factors (CSFs) identified from Phase 1 and create two different scales of measurement, each going from 1 to 9. One scale denotes the relative importance of the CSF to the company and the other scale is its relative performance against competitors. So, on the Importance scale, 1 to 3 would denote order winners; 4 to 6 would be qualifiers; and 7 to 9 would be less important. On the Performance scale, 1 to 3 would denote better than competitors, 4 to 6 would be same as competitors, and 7 to 9 would be Figure 3: Importance-Performance Matrix. worse than competitors. When the two are plotted against each other, we might see a picture emerging such as shown in Figure 3. Here we can identify zones showing where urgent action is needed (lower right side), or where the performance seems to be in excess of what might actually be justified (upper left side). These are the extremes; other zones will indicate where the performance is appropriate or whether some improvement might be beneficial.

In working with organisations we have found it Table 2: COTS Representation beneficial to ask specific departments we are interviewing how they perceived the situation with regard to their own departmental CSFs, that is, their position in an Importance-Performance Matrix. This is Average of interest when looking at the context of the CSFs score organisation as a whole, which means comparing with the findings of Phase 1. Such an approach has the Work Environment 7 benefit of giving cross-checks, such that senior Management style 6 management views are juxtaposed with the perceptions of operational management. The main value here is Professional development 6 that further data is obtained in understanding the issues Responsibility 7 for enterprise-wide systems implementations, above and beyond the top-down views of senior management. Interdepartmental Teamwork 5 However, the analysis of organisational and Departmental Teamwork 8 technological factors is not enough, when we talk about ERP systems. As it was mentioned earlier, the Cooperation 5 implementation of ERP system must be understood as Communication 5 a programme of change that affects the current culture of the organisation and suppliers and customers Project Management skills 6 cultures, as functional areas and ways to operate will Soft skills 7 be modified. In fact, managers of ERP implementation constantly regret about not devoting enough attention Technical Skills 7 to people and organisational changes during the Flexibility/Adaptability 6 implementation (Davenport, 2000). Interdepartmental Awareness 5 For that reason, strategic, tactical and operational people from the organisation were selected to be Paperwork levels 3

6 interviewed with the aim of capturing a holistic view of the culture of the organisation and identify human barriers that might obstruct or even sabotage the implementation process. Furthermore, the interviewers from each department were asked to provide their opinion about thirteen CSFs (Critical Success Factors) for the successful implementation of ERP systems, where the grades are 9-10 (excellent), 7-8 (good), 6-5 (average), 4-3 (poor), 2-0 (very poor), as depicted in Table 2.

Phase 3 in the Three Step Approach

The results gathered from the interviews are represented using the cultural web representation developed by Johnson and Scholes (1999), where the organisational behaviour of the organisation is represented through seven circles, each of them representing a characteristic that contributes to making up its culture.

Stories Symbols

The paradigm Rituals and routines Power structures

Control systems Organisational structures

Figure 4: The Cultural Web representation At this stage, it is again stated to the management that ERP is not a project to be done on the cheap, so they have to be sure that can afford not only the tangible costs of the implementation, but also the costs to bring about business change. Then, and only then we move into the next tasks to identify prospective products and vendors, organise presentations, visit user sites, and make the final selection of product. The final phase of the process, the actual implementation, can now commence. An important consideration in Phase 3 is that the team should not allow itself to be rushed. A vendor will perhaps tell us that an ERP system has ERP Product Company been implemented. In fact, what has happened is Approach Organisation that the software has been installed and initial Technology Structure Techniques Culture / people training has been given. The actual work of Hardware Systems applying the new integrated system in the Software Processes Procedures Procedures company environment is only just beginning. This is a long term effort and can best be Adapt described as embedding the system within the organisation. Figure 5 depicts the idea of mutual Working adaptation of the Enterprise System (ES) and the solutions organisational environment. From all the experience we have had with many different companies, we have learnt that we must Figure 5: Mutual adaptation continually emphasise the importance of this to management and to the key operational staff. This approach ensures the successful transfer of knowledge between vendors, consultants (if any), University and the organisation. This becomes critical during the implementation, as every party

7 involved has different and specific knowledge that is difficult to transfer from one to another (Davenport T, 2000). Furthermore, this sort of cooperative effort between a user company, the ERP vendor, and the University team facilitates the process of monitoring and keeping track of the implementation, ensuring that the project gets the attention required from the implementation team and the company’s top management. As a result, substantial benefits from this approach arise from the very beginning of the implementation, some of which are listed below. a) While the product-specific training is provided by the vendor, a large proportion of the general training and broader education is provided by University. The latter can be provided at substantially less cost, since the University sees many benefits in encouraging its staff and students to participate in “real world” problems. Also, it is easier to ensure that the full knowledge gained during the implementation process is kept in the organisation. b) One of the main obstacles found in ERP implementation is due to the configuration and dissemination of knowledge across the whole organisation. Effective analysis requires both comprehensive understanding of the critical organisational processes (an analysis activity) and detailed knowledge of this very complex software (a design activity) (Siew S. K. and Soh C., 2003). The University’s involvement tries to ensure that this is done. c) As no ERP software is likely to meet all of a firm’s needs (O’Leary D, 2000), organisations often face the critical decision about reengineering their business processes or otherwise to customise the ERP software. Most researchers and practitioners (Pinedo-Cuenca, 2004; Abbas, 2005; Robinson P, 1997; Summer M. 2005; Kent S, 2001; Davenport, 2000, Robinson P, 1998; Siew S. K. and Soh C., 2003) agree that customisation should be avoid unless it is absolutely crucial for the organisation. Top management is encouraged to reengineer the organisation as appropriate. Furthermore, the need for system customisation is reduced as during the three phase approach, since the whole organisation is fully involved from the very beginning of the implementation and understands the potential dangers. d) Another factor to take into consideration is how the system is configured to meet the expectations from the strategic, tactical and operational levels of the organisation, as it is possible to configure an ERP system in a way so that the benefits of integration are not achieved (Markus and Tanis, 2000). Good system configuration can cut down the time and implementation costs about 25% (Myser M, 2005). The triangular combination (University, vendor and user company) facilitates the configuration, bringing together the knowledge about the legacy information system of the user organisation, the full understanding of the capabilities and functionalities of the software, and a full range of knowledge and expertise in management and operation management philosophies. Addressing issues of culture and working practices goes hand in hand with ensuring the ES is installed and operating properly. Our team of consultants become agents of overall change and improvement. Typically, the tools and techniques that may be applied in a manufacturing company would include TQM, QFD, lean manufacturing, poke yoke, performance measurement and benchmarking, amongst others. In the UK, an appropriate vehicle for carrying out this third phase activity is the Knowledge Transfer Partnership, which is a government funded scheme intended to encourage industry-academia cooperation and to develop high quality graduate engineers for management roles. It lasts for two years and so ideally suits the time frames for implementation of enterprise systems and the associated organisational change. Alternatively, other mechanisms may be operated, involving the hiring of consultants, setting up internal project teams under a dedicated project manager and supported my a high project champion, and so on. The Teesside team has previously given a detailed account of the KTP mechanism in operation in a full application of the CHI three phase methodology (Nabhani, Pearson and Heywood, 2005). This involved initial organisational preparation, selection of ERP software and implementation, and embedding of the systems and processes, in a company that designs and manufactures heat exchangers (coils), coolers and condensers for the heating ventilation and refrigeration industry.

8 Conclusion

The TMC team has now accumulated experience in several company projects, where the organisation is utilising ERP as a mechanism to effect enterprise-wide change with the long term goal of significant business improvement. The general approach and the detailed methodology described in this paper is constantly evolving, as we undertake more and more enterprise integration assignments with companies. Experiences gained with each are studied, and the lessons applied in subsequent projects. Each individual case is set in the context of the overall concepts so that we can aim to conceptualise a general framework that could act as a model for future researchers which they might critically review, and look to improve further. The main goal, as we have to remind ourselves, is to help individual members of the industrial community to lift their overall business performance when they embark on fundamental and long term change based upon enterprise systems. In conference papers and journal papers to follow we intend to describe as case studies a number of specific projects with companies which are currently at different stages in the ERP implementation process.

References

Abbas, S. A., (1998), “Fools rush in”, Manufacturing Management (IT Solutions Supplement), July/August 1999. Abbas S. A., Pinedo-Cuenca R, Ahmad M.M., Morris A., (2005), “Developing a methodology for ERP implementation through theory and practice”, 3rd International conference on Manufacturing Resarch (ICMR), 2005, Cranfield, UK. Adolph, W. S. (1996), “Cash cow in the tar pit: reengineering a legacy system”, IEEE software, 13(3), pp 41-47. Bennet K. (1994), “Legacy systems: coping with success”, IEEE software, 11(1), pp 19-23. Davenport H Thomas, (2000), “Mission Critical: Realizing the promise of enterprise systems”, Harvard Business School press. Ferranti, M (1998), “Debunking ERP misconceptions”, Infoworld, 17 August 1998, pp 46). Gulla J. A. and Mollan R.,(1999), ”Implementing SAP R/3 in a multi-cultural organisation”, Proceedings 1st International workshop EMRPS99, Eder, J. Maiden, N. and Missikoff M (eds), Istituto de Analisi dei Sistemi ed Informatica, NR Roma, pp 127-134. Johnson G (1992), “Managing strategic change: strategy, Culture and Action”, Long Range Planning, 25(1), pp 28-36 Johnson, G & Scholes, K. (1999) Exploring Corporate Strategy, Prentice Hall Europe. Kent, S, Gail, C, Raymond, B., (2001), “Enterprise Integration”, John Wiley & Sons. Lee Z and Lee J (2000), “An ERP implementation case study from a knowledge transfer perspective”, Journal of Information Technology, Routledge, part of the Taylor & Francis Group, Volume 15, Number 4 / December 1, 2000, pp 281 – 288. Markus M L, Tanis, C (2000), “The enterprise system experience- From adoption to Success”, p. 173-207, In Zmud, R,W, Ed. Framing the Domains of IT Research: Glimpsing the Future through the Past. Cincinnati, OH: Pinnaflex Educational Resource, Inc. Myser M, (2005) “Microsoft acquires ERP tool set for Axapta”, eWeek.com, 22 February 2005, http://www.eweek.com/article2/0,1895,1768212,00.asp, visited on 25April 2006.

9 Nabhani, F., Pearson, I. and Heywood, I. (2005), “Implementation of an ERP System within a Medium Sized Manufacturing Company”, In “Flexible Automation and Intelligent Manufacturing, Proceedings of FAIM 2005”, University of Deusto, Bilbao. O’Leary, D, (2000) “Enterprise Resource Planning Systems: Systems, Life Cycle, Electronic Commerce, and Risk”, Cambridge University Press, 2000. Osterle, H, Feisch, E. and Alt, R., (2000),”Business Networking: Shaping Enterprise Relationships on the Internet”, New York: Springer, 2000. Pinedo-Cuenca R., Dr R. Marasini, Dr. S A Abbas, Prof. M Ahmad, “Interrelationships of CSFs for ERP implementation in SMEs”, In “Flexible Automation and Intelligent Manufacturing, Proceedings of FAIM 2005”, University of Deusto, Bilbao. Pinedo-Cuenca R., Shaw T, Ahmad M., Abbas S A, “Adoption of ERP systems in SMEs”, Flexible Automation and Intelligent Manufacturing (FAIM), University of Toronto, 2004 pp 1240-1247. Robinson Phil (1998), “Business Excellence: The integrated solution to planning and control”, BPIC. Siew S Kien and Soh Christina, “An exploratory analysis of the sources and nature of misfits in ERP implementations”, Second-wave enterprise resource planning systems, edited by Shanks G., Seddon B. P, and Willcocks P. L, Cambridge University Press, pp 373-387. Slevin, D P, and Pinto, J K, (1987), “Balancing strategy and tactics in project implementation”, Sloan Management review, 29(1), pp 33-34. Summer M, (2004), “Enterprise Resource Planning”, Pearson, Prentice Hall. Wallace F. T. and Kremzar H. M., (2001), “ERP: Making it happen”, John Wiley & Sons Inc. Youngul, K. (1997) “Improving Legacy systems maintainability”, Information Systems Management, 14 (1), pp 7-11.

10