The purpose of the present study is to conduct a comprehensive research of ERP (Enterprise Resource Planning) systems in order to elucidate both advantages and disadvantages of the implementation and use of them in organizations. In its broad sense, ERP systems mean a combination of business management practices in information technology, wherebyÂ company’s business processes are integrated in the system, in order to attain particular business goals.
The main prerequisite to the current research lies in the fact that ERP systems are increasingly practiced in different organizations all around the world. Their popularity is connected with the growing changes of the business environment and the complexity of the activities within a company. All these factors require from managers to adjust the company to the new challenges of the global world.
Also, the present study has been incited by a wide range of the presuppositions which need to be verified. The presuppositions underlying the rationale of the present research should be enumerated as follows:
a) ERP systems foster the achievement of specific business objectives.
b) A wide range of changes in the global business environment and the emergence of new challenges requireÂ adoption of new adequate means such as ERP systems.
c) ERP systems are deemed to provide managers with the most significant tools in achieving comprehensive analysis and on the business plan realization.
d). ERP systems are claimed to be helpful in giving the entire picture on companies process and activities which may facilitate the creation of business success.
Taking into consideration the aforesaid preconditions to the current study, it has been decided to formulate the problem in the form of a research question. The research question is the following: Is the implementation and use of ERP (Enterprise Resource Planning) systems necessary for the creation of business success in a contemporary organization? The above-captioned research questions is about to be answered by means of research methodology.
In order to ensure the coherence and logical consistency of the study, it has also been decided to elaborate a series of objectives. Thus, the research objectives must be enumerated as follows:
- To examine whyÂ employees are reluctant towards changes (integration of new applications), especially when it comes to change their routine.
- To identify the possible threats of a company by using a conglomerate of different systems instead of a centralized one.
- To identify the problems that companies have in the implementation of the ERP systems.
- To draw conclusion about the importance of ERP system implementation.
1.2. Definition of Terms
In order to prevent both semantic ambivalence and guarantee terminological consistency, it has been decided to define the most relevant concepts which are to be used in the present dissertation. The definitions should be expressed as follows:
a) Â ERP (Enterprise Resource Planning) system means â€˜an integrated information system that serves all department within an enterprise’ (PCMAG.COM, ND). Also, ERP system may be associated with a computer-based system created to operateÂ organization’s transactions and foster integrated and real-time planning, production, and customers’ response (O’Leary 2000, p. 27).
CHAPTER II: LITERATURE REVIEW
To put it briefly, the term â€˜literature review’ means a part of research which is specifically aimed to review and evaluate the knowledge of previous publications including substantive findings. Besides, the part of literature review is designed to provide theoretical and methodological contribution to the researched topic. This contribution depends on the nature of literature review as a secondary data collection method. The fact is that literature review does not report about any original or new empirical findings. That is, the review of literature isÂ reconsideration and evaluation of the already known findings. Notwithstanding, the nature of literature review as a secondary data collection method, this design plays very significant role in preparing, orienting and qualifying the results of subsequent primary data collection designs. Also, the review of literature helps to promote the reliability of the present study as compared to previous researches.
In the context of the present dissertation, the chapter of literature review is conceived to bring onto light a wide range of previous publications in the field of business. Furthermore, the method of literature review is likely to elucidate the critical points in the previous studies of ERP systems. It is expected also that the method of literature review will underlie the subsequent primary data collection method of the case study. A more detailed explanations and justifications of review as a research method are going to be made in the next chapter.
2.1. The Nature of the ERP Systems: a Critical Scrutiny
Above all things, it should be iterated that the main purpose of the present research is to explore the implementation and use of ERP (Enterprise Resource Planning) systems. In order to achieve the aforesaid purpose, a clear and intelligible insight into the nature of ERP systems must be made first.
Various scientists analyze the phenomenon of the ERP systems differently. Thus, according to Dimpi Srivastava and Aarti Batra (2010), ERP is an industry term which indicates on the integrated multiple-module application software package, particularly, manufactured to provide furtherance in relation to particular business processes of any organization. The scholars contend that the revolutionary role of ERP systems stems from their ability to integrate all departments in the framework of one business entity onto a single computer.
Ronald Giachetti (2010) defines ERP systems as big, integrated systems which serve all the departments within an enterprise and provide a horizontal view of the organization (p. 1999).
In a like manner, Daniel O’Leary (2000) assays that ERP systems are computer-based software being manufactured to operate transactions within a business entity and provide assistance for integrated and real-time planning, customers’ and production response (p. 27). The author is prone to believe that ERP systems inevitably possess the following characteristics: a) they are packaged software produced, either traditional or web-based, produced to satisfy the interests of server clients; b) they incorporate the majority of processes in the organization; c) they depend on an organization-wide database which usually stores every piece of data; d) they provide access to the data in real time (O’Leary 2000, p. 27).
Apart from the above Â O’Leary (2000) claims that the Enterprise resource planning systems are worth investigating because they are a corporate miracle. The unique nature of the ERP systems makes immense influence on both the business and information technology environment. According to the author, this type of software is capable of Â affecting the biggest corporations in the world to the same extent as small and medium organizations. O’Leary (2000) assays that ERP system (SAP’s R/3) is applied by more than 60% of the multinational companies (p. 3). Such statistics is impressive. Further, the researcher asserts that the effects of the ERP systems are not reduced to big multinational business entities. As a matter of fact, in 1995, SAP, an ERP company, accumulated 90% of its profits from large multinational companies. However, SAP expected 50 % of its profits to come from small and medium enterprises by 1997. Such tendency demonstrates that small and medium business entities are becoming more and more interested in the implementation of ERP systems.
In addition to the abovementioned revelations, it might be appropriate to note that ERP systems may influence on the behavior of competitors. Thus, O’Leary (2000) purports that the incentive of one company to adopt ERP will inevitably lead to the desire of another company to implement similar software as well (p. 4). This means that ERP systems may create a competitive benefit or value. Additionally, O’Leary (2000) claims that the adoption of ERP may also affect business partners’ requirements. In fact, the use of ERP systems may promote the agility of firms in the sphere of information. Those companies which adopt ERP systems better process information and implement it towards the decision making in business procedures. Such emphasis on ERP system in one company stimulates the same reaction of its partners. Thus, if an enterprise operates in real time, it will expect the same real-time operations from its counterparts.
As a matter of fact, Srivastava and Batra (2010) as well as O’Leary (2000), assert that the ERP (Enterprise Resource Planning) systems are always computer-based software. Besides, in both publications, the emphasis is laid upon the potentiality of software to integrate the majority of processes in the framework of one organization.
The question of business agility is also discussed in the collective study by Li Xu, A. Min Tjoa, and Sohail Chaudry (2007). According to the scholars, the property of agility is essential to modern business, while the role of IT in sustaining agility is obvious (p. 19). The authors investigate the concept of business agility in relation to such phenomena as business process management (BPM) and enterprise information systems (EIS). The latter may be delineated as coupled systems which are built upon peculiar reference data models and process ones. The authors predict also that contemporary enterprise information systems are swiftly evolvingÂ towards BMP oriented principles (Xu, Tjoa & Chaudry 2007). In other words, the researchers make attempts to highlight the correlation between business process management and contemporary enterprise information systems (EIS). The linkage between two ideas clearly manifests itself in the implementation of enterprise resource planning systems.
Hence, the findings of Xu, Tjoa and Chaudry (2007) help to make inference that the nature of ERP systems is twofold. On the one hand, they embody the specificities of business process management. On the other hand, they are intrinsically enterprise information systems.
To proceed further, another bunch of researchers is inclined to think that Enterprise Resource Planning (ERP) systems play a very important role not only in integrating process but also incorporating information (Grabot, Mayere & Bazet 2008, p. 181). The scholars continue that, in developing countries, the implementation of the ERP systems have helped to overcome the limitations of partial and incompatible stand-alone and legacy systems. Also, the researchers ascertain that the superiority of the ERP system over its predecessors originates from the fact that the former rests on the best practices in industry, which reflects the most cost-effective and efficient means of conducting business processes. Thus, Grabot, Mayere and Bazet (2008) disclose another salient feature of ERP systems â€“ cost-effectiveness.
To elaborate further, Simha R. Magal and Jeffrey Word (2011) assay that the nature of ERP is very suitable for the proper operation of the production process and material planning process. Not opposed to Magal and Word (2011), Scott Hamilton (2002) is disposed to think that significance of ERP systems lies in their structure. Thus, according to the author, the basic structure ofÂ ERP system includes twelve business functions which utilize a common database. These functions may be enumerated as follows: 1) business planning; 2) sales planning; 3) production planning; 4) customer service; 5) sales order processing; 6) production planning; 7) material planning; 8) capacity planning; 9) procurement; 10) production; 11) distribution; 12) accounting (Hamilton 2002, p. 13).
Taking into account the aforesaid arguments of Scott Hamilton (2002), it is necessary to explicate that ERP systems may control all substantive processes within a specific business entity. As the foregoing discussion must suggest, ERP systems facilitate the decision making process not only in the sphere of management but also in the domain financial transactions and accounting.
The practicability of ERP systems may be exemplified by their potentialities in domain of accounting. As the case may be, management accountants are considered to play an important role in the ERP system implementation process (Grabski, Leech & Sangster 2009, p. 93). On the other hand, ERP systems make substantial influence on management accountants and their professional obligations (Grabski, Leech & Sangster 2009, p. 103). According to the scholars, the implementation and maintenance of ERP systems in a business entity may inflict the following changes: a) changes in time spent on data analysis; b) metamorphoses in participation in business decision making process; c) changes concerning the emphasis on internal reporting; d) alterations with regard to the focus on external environment; e) transitions in focus from retrospective to forward-looking analysis, etc. (Grabski, Leech & Sangster 2009, p. 103-117). The elaboration of this section is not connected with the evaluation of benefits and drawbacks of the aforesaid changes. Nevertheless, it is necessary to cast some light on the functional nature of ERP system.
In light of this, a critical scrutiny of the above-captioned findings helps to understand that the implementation of ERP systems is often viewed as a prerequisite to new forms of analysis which are practiced by management accountants. In other words, the introduction of ERP systems inevitably alters the role of the accountants by supplying them with more information for planning and directing the affairs of the company. It is possible to agree with Grabski, Leech and Sangster (2009) that absence of ERP systems forces management accountants to look backward and elaborate retrospective reports â€˜telling the organization where it has been’ (p. 106).
Expatiating on the literature review, it might be appropriate to note that some researchers are inclined to believe that ERP systems originate from the opportunities provided by two the most important information technologies of 1990s: enterprise systems and the Internet (Seddon, Shanks & Willcocks 2003, p. 1999). Following the revelations of Seddon, Shanks, and Willcocks (2003), it should be expected that the nature of ERP systems will be better understood if these two aforementioned technologies are discussed. In the context of the first technology, it needs to be clarified that enterprise systems (ES) are considerable systems which consist of processes, people and information technology. These conglomerates are usually created around packaged enterprise system software.
To be more precise, enterprise system software (ESS) should be recognized as a series of packaged application software modules which can be used by business entities as their primary engine for the integration of processes, data and information technology, â€˜in real time, across international and external value chains’ (Seddon, Shanks & Willcocks 2003, p. 1999). The aforesaid definition precisely illustrates the nature of ERP systems as derivatives from enterprise systems.
From the contrasting point of view, enterprise system software (ESS) may also be regarded as a generic â€˜semi-finished’ product with parameters and figures which client enterprises and their counterparts must customize, configure and accommodate to other computer-based information systems to fulfill successfully their business needs (Seddon, Shanks & Willcocks 2003, p. 1999).
Suffice it to say that enterprise system software as a generic concept includes enterprise resource planning (ERP), in conjunction with such elements as customer relationship management (CRM), product life cycle management (PLM), supply chain management (SCM), enterprise application integration (EAI), intelligent presentation layer, data warehousing and decision support, and e Procurement/e Marketplace/electronic exchange applications (Seddon, Shanks & Willcocks 2003, p. 2000). That is, Seddon, Shanks, and Willcocks (2003) affirm that enterprise resource planning (ERP) is a constituent of enterprise system software. Moreover, the scholars are predisposed to think that ERP systems constitute the most significant class of enterprise system.
Historically, ERP systems have emerged from packaged software for supporting material requirement planning (MRP) and manufacturing resource planning (MRP II), â€˜hence the strange name: enterprise resource planning’ (Seddon, Shanks & Willcocks 2003, p. 2000). According to Deloitte (1999), an enterprise resource planning system should be understood as a packaged business software system which provides an enterprise with the following possibilities: a) to computerize and amalgamate most of business processes in the organization; b) to facilitate the sharing of common data and practices within the entire enterprise; c) to generate and access information in a real-time environment (Seddon, Shanks & Willcocks 2003, p. 2000). The above-mentioned definition of ERP systems correlates with the previous definitions of the term.
As a matter of fact, this definition concerns an ERP system as a type of software, rather than a kind of organizational system. So, it is corresponds with the definition of enterprise system software. Nevertheless, the definition of ERP system is incomplete without taking into account the capability of ERP software to integrate enterprise-wide processes and information for human, financial resources, manufacturing and logistics as well as marketing and sales functions (Willcocks & Sykes 2000).
Besides, the data structures of ERP systems, program code and in-built assumptions about procedural issues can cause different patterns of practices within an organization which may be accepted with difficulty. In other words, Shanks, Seddon and Willcocks (2003) ascertain that ERP systems are inherently complex and their implementation requires significant care and attention. Thus, the client organization of the system may encounter a predicament in understanding the diverse business process options which are supported byÂ software (Davenport 1998). This fact may create obstacles on the road towards making the proper choices concerning which procedural variants to bring into life (Seddon, Shanks & Willcocks 2003, p. 2001). Thus, the nature of ERP system is very complex. However, the present section is not conceived to provide the analyses of problems concerning the implementation of ERP in an enterprise.
When all things are considered, it is need in being generalized that the nature of ERP system manifests itself through the following range of salient features:
- ERP systems have found to be the integrated multiple-module application software packages. This means that ERP systems always treat several or even the majority of processes in the framework of one enterprise.
- ERP systems have been disclosed as a strategic technological decision to integrate all departments of a single organization.
- The access and sharing of information in the framework of ERP systems is possible inÂ real-time environment which surpasses the opportunities of retrospective reports.
- The implementation of ERP systems creates business agility in many aspects of the enterprise.
- ERP systems combine the traits of business process management and enterprise information systems.
- ERP systems are derivatives from enterprise systems (ES) â€“ one of two major technological marvels invented in 1990s. The second is the Internet.