By Miomir Arandelovic, Doctor of Business Administration
Target of ERP information system in the company is to integrate all aspects of a business, in one database, one application, and a unified interface across the entire enterprise... This integration benefits companies in many ways, however, due to factors such as discrepancy between business needs and standardized ERP functions, pricing issues and difficulties in planning for all needs, a number of ERP implementations had not been successful (Motiwalla 2012). In the modern market condition and fast changes in companies’ business landscape traditional ERP solutions also sometimes could not adapt to the complex business environment and companies are often switching to the more dynamic and flexible Strategic Enterprise Management (SEM) solutions (Clark et. al, 2014).
The topic of this paper is to analyze various benefits and issues of the traditional ERP systems and the circumstances and reasoning for their evolution to enterprise grade and SEM solutions. Based on performed analysis, some generic best practices, which could be applied in various use cases, would be identified.
The Role, Benefits and Contraindications for the Traditional ERP Systems
The purposes of the traditional ERP systems that emerged in nineties had had intent of integration of all business processes and sub-processes into a single unified system that allocates the available resources of the organization in the best possible manner and coordinated with the business objectives of the organization. The need of the modern day business organizations for a single unified system, which aims at harmonizing its business efforts, had been growing in the last year (Bruton 2007).
The ERP system solutions, provided by reputable vendors such as SAP or Oracle had helped many businesses to dramatically improve their efficiency, cut the unnecessary costs and increase market competency. According to Motiwalla (2012), some of the main advantages that businesses had achieved by implementing ERP were:
● streamlining business processes
● improving bottom line of business efficiency
● increase profit due to more efficient operations
● optimize the long term planning and resource allocation
However, the successful ERP stories had been mostly constrained to the developed countries and the companies with well-established business operations and elaborated growth planning. According to Clark et. al. (2014, Kovacs et. al. (2003), Motiwalla (2012) and Rajapakse & Seddon (2005), ERP solutions often failed to deliver an optimal return on relatively high financial investment for business that:
● had chosen a solution which couldn’t quite fit their need
● operate in the developing countries
● find the cost of ERP software or implementation to high
● are distributed in space and/or composed from temporary joint ventures
● have a number of complex and fast changing projects
Difficulties of ERP Customization
ERP software development is generally oriented towards most common business goals. ERP system packages from major vendors such as SAP and Oracle cover many variations in business structure; however it cannot fit all possible models. Jackson Labs, world-renowned, non-profit, genetic research institute, for instance had significant problems adapting Oracle Process Manufacturing (OPM) module customized to accommodate laboratory’s unique business process of raising and distributing mice. In the scenario of unique business needs, management can choose between expensive custom development and a system which might be the closest match with intent to redesign business processes to match the software technology. The latter option is frequently chosen, when feasible to offset the high cost of both initial development and future upgrades (Motiwalla, 2012).
However, when the process adaption is not feasible, some level of ERP customization is necessary. According to Kimberling (2009) only around 23% of the organizations implement ERP with minimal or no customization, while 34% of them perform heavy customization. The adaptation of a unified system is challenged by custom and changing circumstances. To respond to these challenges, major ERP vendors had been traditionally developing a number of add-ons to the core solution and lately adopt some core architectural changes such as network/flow control model instead of long time used hierarchical model.
ERP in Developing Countries
ERP solutions today provide computer-based, enterprise-wide, business-process support that is based on seamless integration of data and processes across the organization that offered consolidated reporting and attempts to optimize resource allocation. The ERP solutions provided support for more efficient business for many companies; however, the vast majority of these companies reside in the developed western countries. The research of Rajapakse & Seddon (2005), based on the data from three largest ERP vendors (SAP, Oracle and PeopleSoft) revealed that less than 7% have been in developing countries. The study of the business of Asian countries pointed out that the main reasons for the low ERP penetration there were: cost, lack of knowledge of ERP system concepts, limited national IT infrastructure, culture differences, incompatible process models and change management issues.
While the knowledge and cost barrier are gradually melted away the main issue for low ERP utilization in developed countries, similarly as in the cases of custom business processing are the differences between the intended and the actual business environment. These differences in how businesses operate make difficult to introduce ERP even with organized efforts of the government in the developing countries. Difficult cultures, for instance, often have different priorities in business as, for instance, staff reduction facilitated by ERP adoption clashes with cultural norms in the labor market of many developing countries. Another difference to working conditions in developed countries is that most of the Asian countries had looser relation between various organizational units, and thus the tightly coupled modules of ERP systems are not well accepted by the users. While the ERP solutions that fit such criteria are possible to develop, a custom development by major ERP vendors is beyond reach of most of the businesses in developing countries, while it is also usually not economical to these vendors to perform major modification in their system architecture to fit the operations in developing countries (Rajapakse & Seddon, 2005)
In order to increase the usability and penetration of ERP systems in developed countries, Rajapakse & Seddon (2005) suggest that following adaptations of ERP vendor approach would be necessary:
● Environment-specific pricing strategies that can be attractive to at least the top business organizations in the region.
● Design of ERP products at multiple integration levels, so that user organizations can select the level of integration they desire.
● Development of different versions of software for different regions of the world with similar cultural and business practices.
ERP in Small or Medium Businesses with restricted Financial Resources
Similarly as in developing countries, a full ERP solution is often not an option for many small businesses, due to relatively high cost of software and implementation. While these companies were recently limited to inexpensive generic solutions that manage specific aspects of the business, such as general ledger, accounts receivable and payable and payroll, recently modular, cloud-based business applications presented viable alter natives.
According to Clark et al. (2014), companies like Ariba, Hybris, Salesforce.com, Taleo, Workday, and others are already having a disruptive effect on the traditional ERP market by offering sophisticated, flexible, highly mobile, and easy-to-use applications in all manner of functional areas on a subscription basis. The company operations would in these case run on the cloud based solution of the aforementioned vendors, as Software-as-a-Service (SaaS) system. Such systems can be run at minimal startup costs and with acceptable ongoing fees, while offering a modern, well integrated functionality and user experience to the customers.
ERP in Enterprises Based on Distributed or Multiple Organizations
Kovacs et al. (2003) suggest that planning, design and management goals and requirements of firms based on distributed and especially independent organizational units are different from those of single, centralized enterprises. The authors propose that a complex organizational structure where the constituent units keep their independence and other relationship throughout the business require network approach and process flow modeling rather than simpler and more common hierarchical architecture.
Motiwalla (2012) concurs with such findings and emphasizes to scope of Business Process Reengineering and local units adaptation and control mechanisms that Disney, which operates in in 40 countries, through 700 affiliate companies, had to do while implementing the global ERP system. According to Kovacs et al. (2003), generic networking approach, which represents organizational units to by network nodes with a specific set of local attributes, addresses the following emerging issues for complex organizational structures:
Virtual/extended enterprise paradigm assumes a number of autonomous units or even temporary ventures that co-operate in achieving common business goals. This paradigm involves an additional dimension of changes and extensions to the enterprise, as each of the units perform its own interaction with the external world, which impacts the context and scope for logistics decision-making
Pull-oriented business models accept a market reality of coordination of the internal business operations with processes outside the factory, thus calling for increased commitment and reliability in supply chain.
Lean/agile operation model proposes transient, goal-driven process chains, rather than a relatively permanent system structure that is considered by most of the traditional ERP solutions.
Global market conditions also require that, to ensure competitiveness, companies need to adopt outsourcing and offshoring strategies, decentralized manufacturing facilities, extended
range of suppliers and necessity to ensure customer satisfaction in different environments. The network-oriented ERP infrastructure proposed by Kovacs et al. (2003) is presented on Figure 1 below.
Figure 1. Network node workflow infrastructure, by Kovacs et al. (2003).
Systemic add-ons to common ERP operations here are Active Flows Control (AFC) component, which monitors interaction with nodes in the network model and maintain updated information on active logistics flows; Performance Measurement System (PMS), that works in parallel with the AFC to: keep historical recordings of the network activity and provide multiple performance measures for the different network roles and viewpoints and Decision-Support Systems (DSS), for input and output flows management, that process internal and external demands; allow flow planning based on AFC and PMS input.
Clark et al. (2014) also supports network-based organization of the next-generation ERP systems, that move beyond the hierarchical and other features of the traditional ERP to engage more closely with a network of customers, suppliers, and employees alike, and by a desire on the part of companies, supported by cloud-based functional applications that complements legacy ERP systems.
ERP in Fluctuating Business Conditions with Multi-Team Projects
A complexity of the development of new products, such as software applications in the fast changing environment and with multiple teams involved also presents a challenge to standard ERP systems. Collaborative project management is especially import for the organization whose products and services require continual development to stay competitive on the market. In the modern fast pacing environment, management is not regarded as an activity reserved solely for managers of the separate teams, but are comprised from, sub-plans, that are networked and synchronized to tie all partners into the system of planning and control and to promote a common understanding of overall planning (Gupta, 2015).
Collaborative project management makes extensive use of localized control loops that
help break complex projects into smaller, more tangible, sub-systems which are then assigned to
members of the relevant departments. To ensure synchronization, it is necessary to have a shared
database and knowledge repository that could provide a quick reference to project planning data
and ongoing information to all the project members wherever they are located. Cloud-based solutions are also a good use case for the cross-project and cross-team collaboration.
Various modern cross-department project management solutions, such as commercial Projection Coordinator (projectcoordinator.net, n.d.), type of software tool or open source solutions such as Freedcamp or Trello (Burger, 2015) are directed towards contextual, intuitive and visual access to the important shared information and unobtrusive notifications.
Such approach ensures integration of the overall organizational efforts in both “radial” directions, where teams can rely on the shared knowledge and cross-departmental help and “tangential” direction, where each of the individual tasks contributes to the achievement of the unified company goals.
Figure 2. Sharing Explicit Knowledge between Organizations in Knowledge Network
In addition to internal information, the modern organizations need to exchange the knowledge with its environment and business field to stay up to date. A sample collaboration network of a sample organization (in the center) and the neighboring organizations, in the expert network of the industry field, is illustrated in Figure 2 above. While each of the organizations (presented by a small circles) in the field maintains its private circle of tacit knowledge (larger circles), it also participates in the explicit knowledge sharing in the industry (largest circle in Figure2) with the external knowledge centers. The collaboration enhances the explicit, and consequently tacit, knowledge of each participating organization, allowing for the cooperative efforts that cover new areas (marked by bolded line in Figure 2).
Increased competition and technological abilities, globalization, increased collaboration between partners in the supply chain and vertical integrations performed within the companies had caused multiple challenges for the business coordination and the related ERP systems. Some of the traditional ERP assumptions and practices such as centralized management, hierarchical and stable business flow, bilateral supply relations and others could not adapt to the new market conditions. Also, the traditional ERP solutions are often inappropriate or too expensive for the customized and small business and the firms in developing countries.
Multi-site planning extensions offered by major ERP and SCP vendors do improve the efficiency of the existing systems, but are still based on a centralized approach, that lacks flexible information synchronization and collaboration with the other network actors. A new generation of ERP systems thus complements the traditional functionality by better coordination and real-time control of materials flows. The new enterprise-grade applications are thus designed to support flexible and dynamic network of the participants, rather than fixed organizational trees. They produce new layer of functionality to the traditional ERP system that can support much more flexible cross-project and cross-team coordination and a dynamic reallocation of the components of the manufacturing or a supply chain. The latest Strategic Enterprise Management systems based on such enterprise coordination applications are able to control a layout of the utilized components and traditional ERP functions. These services rely on the technology advancements such as cloud-based data sharing on the global level and utilization of SaaS model to reduce costs for the smaller participants.
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