Success and failure factors of adopting SAP in ERP system Essay

Findings – Identifies six common factors that are indicative of successful or non-successful SAP implementations. It has been found that the lack of appropriate culture and organizational (internal) readiness as the most important factor contributing to failure of SAP implementations in 1 5 companies. The presence of project management approaches and appropriate culture and organizational (internal) readiness are the most important factors contributing to the success of SAP implementations in 29 organizations. Research limitations/implications – The data analyzed is from secondary sources published in the press.

Secondary reporting could increase objectivity; however, the weakness is that not all the factors might have been reported. Originality/value – Identifies factors critical to the success of SAP implementation Keywords Manufacturing resource planning, Critical success factors Paper type Research paper Introduction Enterprise-wide resource planning (ERP) system software packages are highly integrated, complex systems for businesses, and thousands Of businesses are running them successfully worldwide (Koch, 1996).

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Even companies such as Hershey, JoAnn stores, Whirlpool and Contaminates that have suffered through lassie disasters, acknowledge the software packages are able to handle the job. The systems are capable of functioning as advertised; however, companies run into costly and sometimes fatal difficulties with the implementation and subsequent maintenance of these packages. According to The Gardner Group, 70 percent of all ERP projects fail to be fully implemented, even after three years (Gloomily, 1998). Typically, there is no single culprit responsible for a “failed implementation”, and no individual reason to be credited for a successful one.

Those implementations considered partial failures often resulted in tenuous adjustment processes for the company; creating some form of disruption in daily operations. In the same vein, an ERP success can be a complete success -? one in which everything goes off without a hitch, or one in which there are few alignment problems, resulting in minor inconvenience or downtime. Frequently, these situational circumstances that have to be ironed out in the weeks and months after the “go-live’ date are not severe enough to disrupt the daily operations. There are dozens of vendors of ERR systems.

However, the top five ERR system vendors are SAP, Peoples, Oracle, J. D. Edwards, and Bean. SAP has been recognized as the leader with more than 50 percent of the market (Burns, 1999; Member et al. 2000; Stuntman and Roth, 2002; Vaughan, 1996). Hence, the current study has focused on SAP implementations as a leading example of ERP system implementation. One of SAP’s major strengths includes the extensive capability of the software’s functionality. Perhaps two of its shortcomings are the complexity of the system and the resulting implementation.

It is widely used in industries such as chemicals and pharmaceuticals (process industries), and also in oil and gas industries. By making a huge and ongoing investment in research and development, SAP continues to strive for increased dominance of the ERP market. Accordingly, developments are underway to gain strength in many other sectors of the economy. There are over 20,000 customers running the SAP software systems today; this equates to 20,000 “successful” implementations. Some of these were originally failures, requiring iterative attempts at making the software work as designed.

In order to determine factors that will indicate early on whether a project will be successful, or doomed to potential failure, 44 companies that implemented SAP were reviewed. These companies vary in size, industry and scope of implementation. The research methodology employed for the analyses was that of content analysis, which examines the content within published articles, and processes the information contained within them through qualitative processes. The companies analyzed implemented SAP between 1995 and 2000. The next section provides a review of the literature on the implementation of ERP systems.

The third section of paper describes the research methodology adopted for this paper. The fourth section elaborates on the findings and describes the factors that play a role in success or failure of SAP implementation. The last section draws some conclusions. Enterprise resource planning systems An effective business strategy centers on an aggressive, efficient use of information technology; for this reason the ERP systems have emerged as the core of successful information management, and the enterprise backbone of the organization (Nash, AAA, b).

A successful ERP system will streamline processes within a company and improve its overall effectiveness, while providing a means to externally enhance competitive performance, increase responsiveness to customers, and support strategic initiatives (Sanded et al. , 2001). The benefits of ERP systems, once the pains of implementation are over, appeal to companies. There are many factors to be considered in making the decision of whether to implement an SAP system or not. The technical aspect is not the only factor that needs to be considered; unfortunately many companies have not seen this until it was too late.

The financial commitment is substantial; therefore, chief executive officers and senior executive teams must be deeply involved. Simply put, ERP is not intended for every business. When considering the decision to invest in an ERP system, a business case must be developed to provide an understanding of ERP, and to formally assess the benefits that the many – as an individual entity apart from its competitors – can expect to achieve. The analysis must consider not only the obvious cost/benefit analysis, but also the non-financial factors. Non-financial benefits include information visibility and flexibility (Sanded et al. 2001). A more complete listing of tangible and intangible benefits is provided in Table l. ERP implementation costs are incurred in three areas: software, hardware, and personnel. The personnel (or the human resources) cost is by far the largest and most expensive, but at the same time has been the area given the least amount of consideration. The software and hardware costs are often easily quantifiable; however, the “human” cost is not (Davenport, 2000). There have been a few papers recently published on the factors contributing to ERP implementation.

Dong (2001 ) proposed a conceptual model exploring the impact of top management on enterprise systems (SEES) implementation. Aladdin (2001 ) described an integrated, process-oriented approach for facing the complex social problem of workers’ resistance to ERP systems. Hang and Pluvial (2001) proposed ten factors (at the national/environmental and organizational level) concerning ERP implementation by making a imprison Of advanced and developing countries. The national/ environmental factors identified by them are economy and economic growth, infrastructure, regional environment, government regulations, and manufacturing strengths.

They also noted that information technology maturity, computer culture, business size, business process re-engineering experience, and management commitment are the organizational level factors. Hang and Pluvial (2001) did not categorize the factors into those that contribute to success and those that contribute to failure. Nah et al. (2001), based on a study of earlier papers (most of which were roommate/prescriptive in nature), identified 1 1 factors that were critical to ERP implementation success.

The 11 factors noted by them are (1) ERP teamwork and composition; (2) change management program and culture; Tangible benefits Intangible benefits Inventory reduction personnel reduction Productivity improvements Order management improvements Financial cycle improvements Information technology cost reduction Procurement cost reduction Cash management improvement Revenue/profit increase Transportation/logistics cost reduction Maintenance reductions On-time delivery improvements Information visibility

New/improved processes Customer responsiveness Cost reductions Integration Standardization Flexibility Globalization Supply/demand chain Business performance Dismantling inefficient legacy systems failure factors Of 503 Table l.

Tangible and intangible benefits of ERP systems Downloaded by NANNING TECHNOLOGICAL UNIVERSITY At 20124 30 January 504 (10) (11) top management support; business plan and vision; business process re-engineering and minimum customization; effective communication; project management; software development, testing, and trouble shooting monitoring and evaluation of performance; project champion; and appropriate business and information technology legacy systems.

None of the above papers were based on any primary’ empirical data (in the form of survey or case research) or secondary data (content analysis of reported cases or survey studies). Tonsillectomies et al. (2001), based on a survey of 50 respondents, underscored the need for integration of existing systems with ERP applications in ERP implementation.

Stuntman and Roth (2002) through a questionnaire survey of 79 North American manufacturing users Of ERR systems identified eight generic constructs (strategic information technology planning, executive commitment, project management, information technology skills, business process skills, ERP training, learning, and change readiness) that are hypothesized to be associated with successful ERP adoption. However, the works of Nah et al. (2001), Tonsillectomies et al. (2001) and Stuntman and Roth (2002) do not focus on factors of failure.

Mumble and mumble (2001) expressed their views on 14 success factors (definition of business goals, establishment an executive management planning committee, thinking of implementation as research and development, use of cross-functional teams, stocking implementation teams with the best and martens workers, alignment of everyone’s interest by giving mid-level management hands-on responsibility, constant communication with teams and end users, excellent project management, choice of partners, extensive education and training, management with data, measurement of the right things, establish meet of aggressive achievable schedules, and no fear for change) and nine failure factors (top management failure, poor project management, lack of education and training, people do not want new system to succeed, unrealistic expectations about implementation, inaccurate data, attempt to automate existing redundant or non-value-added processes, mismatch between the business and ERP system selected, and technical difficulties can lead to implementation) in ERP implementation. It appears that the work of Mumble and Mumble (2001 ), though normative/prescriptive for failure and success of ERP implementations, is not based on a systematic analysis of ERP implementations in different organizations.

In summary, the review of the literature shows that there is not much of research done on identifying the factors of SAP implementation success and failure based on he content analysis of published articles and books. That is the main thrust of the current work. Research methodology The primary purpose of this research is to find out the factors that contribute to success and failure in adopting SAP. Content analysis has been be used to infer from Downloaded by NANNING TECHNOLOGICAL UNIVERSITY;r’ At 20:24 30 January published articles the factors that lead to success or failure for an ERP project, specifically SAP implementations. Content analysis is “fundamentally empirical in its orientation, exploratory, and predictive in its intent” Scorekeeper, 1980).

This research technique is often used to determine the bias between two sides of an issue (for instance, labor unions versus manufacturers), to determine quantitatively whether readers can and are being influenced by the manner in which an article is written, or even where it is placed in a publication. The facts Of a successful or unsuccessful implementation are fairly straightforward – the project succeeded or it did not as measured by financial standards, or by operational standards. Content analysis was used on this level as a tool to analyze the material and make commendations that will provide knowledge, new insights, and a practical guide to future actions (Scorekeeper, 1980).

This content analysis is not to sway the reader into forming an opinion of the outcome, only to indicate specific factors that relate to the outcome. The data generating and data reduction methodology involved analyzing textbooks, journals and magazine articles for information related to companies that have implemented SAP software. Companies that implemented SAP between 1995 and 2000 period were analyzed. Articles were chosen through a library database, using search rewords of SAP, ERP, SAP success, SAP failure, and implementation. Companies were removed if the supporting articles only detailed what happened after implementation or gave no details surrounding the success or failure. Data inference centered on mapping and analyzing the factors stated within published articles.

The analysis phase involved determining the frequency of particular factors from within the entire population. The structure of the research allowed for a company to cite more than one factor relating to success or to failure. In all, more than a 100 articles and books were searched. A sample of those includes Atkinson (1 999), Business Wire (2001), Campbell (1999), Jesuits (1997), Levin (1998), O’Brien (1999), Coastland (2000) and Whitley (2000). The content analysis showed that SAP implementation successes accounted for two-thirds (29 in absolute number) of the companies studied, and failures accounted for the remaining one-third (15 firms).

Failed implementations are often more difficult to research, as companies tend to keep problems hidden from public view as much as possible to avoid embarrassment and/or potentially serious financial repercussions. The factors were categorized into six logical groupings. Factors and findings from content analysis Before beginning an ERP implementation, that is even before a vendor is chosen, much planning and thought must go into the process. By utilizing the methodology of content analysis, it was possible to identify terms that occurred within the research, and quantify their frequency. The companies evaluated within this research were mapped against the criteria, and inferences are drawn based upon the information. All the factors were lumped into six logical groupings.