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Enterprise Resource Planning Systems: A Competitive Advantage

Graphic courtesy of Jack Nestell

As fashion moves into a new age of technology, companies need to weigh the risks and benefits of using tech resources. One such option is an enterprise resource planning (ERP) system, which is a software solution that integrates organizational business functions. ERP solutions provide an organization with many benefits and value. ERP provides a unified system and database that supports real-time business data access and improved data management. But is an ERP system a wise investment?

Value

The primary reason for the ERP evolution in the 1990s was the result of increasing customer service demands, global market competition, need for improved supply chain visibility, improved financial visibility and cost savings demands. ERP solutions can provide a holistic view of an integrated supply chain. ERP is one of the most valuable and strategic tools organizations can deploy (if done effectively) to deliver a significant competitive advantage. ERP solutions allow for more effective and efficient manufacturing, improved business information and visibility, decrease in operational costs, improved financial management, improved inventory management and improved organizational communication.

Through the integration of all business units, ERP solutions help manage, control and streamline business information. With improvements in timely and accurate access to business information, ERP solutions can benefit an organization’s financial position by reducing costs, improving efficiencies and simplifying decision making. The global ERP market is expected to reach roughly $42 billion by 2020 according to Wamba, Kamdjoug, Akter, and Carillo in the 2018 report, “ERP Adoption and Use in Product Research,” and the potential value and benefit of ERP is well understood.

Risk

Despite the competitive advantages that an ERP implementation could provide, these systems have high failure rates and significant challenges. ERP organizational change has inherent and potentially significant business risks, and there has been a great deal of research that demonstrates a high failure rate for ERP organizational change efforts.

Anecdotal evidence, case studies and research demonstrates that, in general, the realization of ERP’s potential benefits can be quite challenging. ERP implementations can often require a significant amount of time, money, effort and resources in order to implement and assimilate. In fact, since the ERP boom in the 1990s, the failure rate has not improved even though many of the ERP challenges are known. Most research suggests that ERP projects can take between one to three years to implement, but with the benefits may not be realized until months after.

The significant resource requirements (primarily time, money and effort) and challenges required for successful ERP assimilation is well understood in the ERP field. Most ERP professionals and researchers share the same perspective and understand that there can be significant ERP organizational change challenges, risks and failure rates despite what vendors or sales may tell you. For an example, Hawari and Heeks state in their 2013 article “Explaining ERP Failure in a Developing Country: A Jordanian Case Study” that 50% to 75% of organizations in the United States encounter some level of ERP failure. Global and readily recognized ERP brand names have either failed entirely or struggled significantly from ineffective systems.

That fact is, while successful ERP implementation and assimilation offer strategic advantage, ERP challenges and failures can be significant and are frequent. While the definition of failure can be subjective (and can mean anything from wasted time, money and effort to lack of proper functionality), preventing any level of failure is critical.

Successful ERP organizational change matters because the evidence demonstrates that ERP failure is extremely costly to U.S. organizations. The risk to an organization’s ERP assimilation goal if success is not achieved could lead to loss in production, decrease of product quality, loss of customers, decrease in profits and/or loss of sales. At its worst, it could mean plant closure, bankruptcy and/or lawsuits. ERP organizational change fails due to a large array of reasons, according to D.E. O’Leary in a 2000 article published by the Cambridge University Press, and the number of horror stories about failed and out-of-control ERP projects is significant, according to David Louis Olson in his 2004 book, “Managerial Issues of Enterprise Resource Planning Systems.”

Path to Success

Despite the significant challenges, many businesses view the benefits of successful ERP system to be worth the time, money, effort, risks and challenges. ERP implementation challenges and risks will never be fully eliminated, and there will never be such a thing as a perfect implementation, but there is hope.

Stanciu and Tinca define a successful ERP project in their 2013 article “ERP Solutions Between Success and Failure” as one that accomplishes stated and desired functionality, that is able to be utilize as planned and that is operational within the planned time and budget. In addition, success can be in the form of business value realized, such as reduced inventory cost, improved supply chain visibility, reduced operational costs, etc.

However, implementation challenges and risks can be better managed and/or eliminated if an organization knows what to focus on and look for during an ERP organizational change effort. With insight and awareness of success factors, ERP failure risk can be mitigated. In fact, many studies have been done among practitioners and in academia looking for ERP success models and critical success factors.

Organizations need to consider evaluative learning in order to improve their ERP success and to mitigate risks. Evaluative learning is the act of considering, reflecting and learning from the experience of others. Experienced ERP practitioner professionals and researchers have identified a vast array of critical success factors in an effort to provide mechanisms for addressing and mitigating organizational failure, risks and challenges.

Complex factors and influences impacting ERP success allow underlying conditions to exist that create gaps and thus prevent the vision of ERP success in many organizations that are not the obvious, visible or tangible factors. Corporate diversity, culture, communication and leadership are good examples. These variables may be less obvious than the functional systems or technical project tasks that tend to be more tangible, testable and task-oriented. These more tangible factors tend to be easier to quantify, measure and notice, but it is often the less tangible factors that have the greatest impact on success.

Scholars and practitioners continue the search to find common denominators in considering all possible influences upon digital transformation success. ERP research presents a common theme that suggests that organizations that become aware of, implement, and put the appropriate emphasis on the vast array of critical success factors will be better prepared and positioned with the organizational skills needed to increase the likelihood of ERP assimilation and meeting the desired organizational goals.

The key for organizations is to dot “i”s and cross “t”s in terms of project management while being cognizant of some of these critical success factors. If your organization is considering implementing a new ERP solution, keep in mind some of these key factors. An ERP organizational change project is not just an IT or project management office endeavor; success requires the entire organization to be prepared, engaged and committed. Proper vendor selection from a professional, vendor-neutral partner is critical; there is only one best ERP fit for each and every organization. The executive team needs to be visible and active.

ERP organizational change can be significant and requires tolerance for conflicts (conflicts of interest among different functional departments are common in these implementations, which lead to time delays, budget overages, miscommunications and, hence, project failure). Transformational leadership in which leaders are able to create a corporate culture of acceptance, willingness and a positive mindset amongst the stakeholders is crucial. Any organization will need strategy alignment and communication in order to have time to strategize, plan, motivate and manage appropriate key success factors.

Jack Nestell is a doctorate student at the University of Southern California where he is studies models for successful ERP organizational change. Nestell is also a 28-year ERP/IT professional and has served in a number of corporate leadership positions. For more information, please visit nestellassociates.com.

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