Miomir Arandelovic, DBA
There are many technical and organizational challenges in successfully implementing Enterprise Resource Planning (ERP) system that will be well aligned with the company needs. The 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. When some degree of ERP customization is necessary, the organization could take various steps to reduce implementation cost and risks (Motiwalla & Thompson, 2012).
The topic of this paper is to analyze the ERP implementation in a genetic research institute Jackson Lab. The company decided to implement ERP to achieve system integration and more efficient tracking of its business processing, however, due to unique operations, that include production of laboratory mice, the customizations in ERP systems were necessary. Various strategic measures that Jackson Lab performs to reduce risks and costs of customization would be analyzed and best practices identified.
Jackson Lab ERP Implementation
Jackson Lab is world-renowned, non-profit, genetic research institute with budget of $80 million and 1,200 employees. In year 2000, company decided to introduce an Oracle ERP System, with Oracle Process Manufacturing (OPM) module customized to accommodate laboratory’s unique business process of raising and distributing mice. To reduce the risks and costs of the customized ERP implementation, the management of the Jackson Lab took the following steps (Motiwalla & Thompson, 2012):
● negotiated fixed-fee contract with the implementation vendor (Oracle)
● aspired to assure vendor accountability by establishing surety bond
● chose a phased-implementation approach instead of a big bang approach
● involved company’ top employees to support ERM implementation process
The ERP system at Jackson Labs has been implemented in couple of phases (Motiwalla & Thompson, 2012):
First phase included: management of production capacity, accounts receivable, some general-ledger functions, and the purchasing of manufacturing material.
Second phase included: accounting for research grants, the rest of general-ledger functions, accounts payable and fixed assets.
Final phase included: process management, human resources, payroll, labor distribution, and a grant filing application were installed.
In spite of numerous challenges and lack of experience in ERP usage, the new system at Jackson Labs was implemented at costs close to the planned budget and with a relatively small overrun of six months. The major problems during implementation had been related to the higher than expected costs of training as well as an engagement of the employees during system implementation (Motiwalla & Thompson, 2012).
Accountability for Custom IT System Implementation
A study of Standish group (Standish Group, 2004) determined that an average cost overrun of custom IT projects is 43 percent and that 71 percent of projects exceeded time estimates, with the total annual loss for U.S. companies at the amount of $55 billion annually. Thus management of the companies engaging in IT project is often careful to mitigate such high risk. According to Motiwalla & Thompson (2012). Jackson Lab management choose surety bond which, guarantees that the second party would fulfill an obligation or series of obligations, even though such bonds are more frequently used in construction business, due to insufficient commonality and standardization in IT.
One of the reasons that Jackson Lab pursues this option was that it has been government-funded non-profit institution, and surety bonds are required by government agencies (Wolf, 2009). While in the case of Jackson Lab, company did not need to exercise claim covered by a surety bond, this has been an expensive option which, in the case of the significant problem wouldn’t have been of much help as it actually helps the vendor stay within a liability determined by bond, protected from a law suit. The surety bonds are best suited for clear identifiable project goals, while it is difficult to quantify and articulate performance and suitability for the purpose of the software application. If the ERP implementation is not driven by independent incentives for both vendor and organization, security bond could actually dilute the commitment and effectiveness of the process. The well specified requirement and the iterative, Agile implementation, where each step can be verified before continuing are more reliable way to ensure that the new system would function according to expectations (Holm, 2014).
Phased vs. Big-Bang Implementation of ERP System
A phased implementation was optimal approach for Jackson Lab’s ERP implementation, as it is for the most new software systems. It is difficult to plan and even more to implement an overall change using big-bang approach, due to a number of unknown challenges that could occur on the way, as well as the major impact that could have on the current business. One of the largest issues that Jackson Lab experienced was the disrupted production flow due to engagement of the best employees in ERP implementation, as well as due to the training of all personnel. These issues could have been much more severe if the big-bang approach has been used.
The phased implementation of the new software systems also have advantages that most critical systems “come into radar” first and that the processes get tested and settled before the fully system goes alive. Such approach also reduces resistance and increases confidence of the employees to the new system. The common advantages to implement the whole ERM at one stage, such as lower resource engagement, lower costs and shorter implementation time are more suited for the transition of the existing system to a new version with similar functionality. In the cases of the major changes or new implementations, such as Jackson Lab ERP, the advantages of mitigated risk and less steep learning curve of the employees have much more weight (Lee, 2013).
Top Management’s Role for the ERP Life Cycle
ERP system, especially its improved reporting efficiency is an essential tool for senior management of any company, as it allows leaders to capture the current state of business state across all divisions and operations. As company leaders are ones who would be using the ERP tools and drive business decisions based on the information they get, it is crucial for them to get engaged during the phase of ERP design, to set the pragmatic requirements of what they need. According to Phillips (2013), “Executives' commitment in an ERP project -- or lack thereof -- can make or break it.”
If top management is not engaged in the ERP System operation, the system stands little chance of being successful within the organization, as the lack of understanding and utilization of the system would also propagate down the chain of command to every aspect of the company. One of the reasons of disconnects between top managers and ERP lies in differences between the assumptions that executives have about their role in the project, versus the actual effect. Company leaders often do not have an experience in overseeing an ERP implementation or just do not dedicate enough attention to it, due to other daily obligations (Phillips, 2013).
Phillips (2013) suggests the following steps to foster the executive’s engagement and commitment to ERP implementation:
● educate senior management how ERP affects the way they run the business
● visit the company or study the case where similar ERP has been implemented
● actively participate in consulting team and recommended software evaluation
● communicate the need for action
● organize ERP project steering team and assign support in various departments
● focus the steering team's efforts on benefits realization
ERP system can bring a significant improvement in efficiency of business processes in any organization. Capturing and exposing fast and flexible access to crucial business information makes possible for company management at any level to comprehend the current state of the operations and identify and address the potential issues.
However, for ERP system to work efficiently, it is necessary that software features are well aligned to the business processes. If this is not the case, ERP system implementation would fully or partially fail. To bridge the gap between generic ERP software design and the unique company requirements, it is often necessary to customize the software, change the processes or a little bit of both. During such customization process, it is important to take the steps to mitigate the potential risks for the cost or feature discrepancy to the expectations.
One of the most effective measures to ensure that custom ERP implementation goes on as expected, as observed in Jackson Lab’s case, are to implement phased approach to system introduction, that helps to ensure that components work as expected before integration, as well as to allow the time for the employees to buy off on the new system. The engagement of the subject experts for the specific area of company business and participation of the top management are also crucial to make the ERP implementation successful. While more formal measures to shield the company from the potential risks, such as surety bonds and insurance for the work done could be beneficial, they are not a replacement for the well-managed commitment of both vendor and the company employees.
Holm, J. (2014). Why Didn’t The Federal Government Have A Bond On Healthcare.Gov? Retrieved from: http://www.enhancedinsurance.com/news/federal-government-bond-healthcare-gov/
Lee, J. (2013). ERP Implementation Strategies: The Pro’s and Con’s of Big Bang vs. Phased Roll-Out. Retrieved from: http://www.erpvar.com/blog/bid/98952/ERP-Implementation-Strategies-The-Pro-s-and-Con-s-of-Big-Bang-vs-Phased-Roll-Out.
Motiwalla, L.F., & Thompson, J. (2012). Enterprise Systems for Management (2nd ed). Boston, MA: Prentice Hall.
Phillips, S. (2013). Getting senior management on board with ERP projects. Retrieved from: http://searchmanufacturingerp.techtarget.com/tip/Getting-senior-management-on-board-with-ERP-projects.
Standish Group (2004). CHAOS Report. West Yarmouth, Massachusetts: Standish Group.
Wolf, B. (2009). High Risk Surety Bonds. Retrieved from: https://www.suretybonds.com/high-risk.html.