The History Of The Critical Success Factor

Published Date: 02 Nov 2017

ABSTRACT

The intention to work on the paper is to highlight issues in contemporary implementation practices of Enterprise Resource Planning, while proposing best practices to adopt in order to address highlighted issues. The best practice will be as per PMO methodology for effective project management.

Organizations hire implementation consultants before going after realization, however, the best practice may or may not differ. For the reason, we will look into the methodology deeply and propose new ways for effective and in-time implementation.

In the research, we will address top issues that let these projects span in a relatively shorter period, while propose the best practice that should be followed in order to effective deployment of an ERP system with an ideal example of a company in the oil & gas sector.

INTRODUCTION

In our digital age, information systems are a core part of almost any organization of any size. Nowadays all the corporation’s business process from daily operations to long term strategies is related some type of information technology. These systems are each day more and more important since they can strength the competitive position of organizations and add decisive value to the companies. (Zeng, 2003).

The first time that the ERP term was used was in the early 90s by Gartner Group. This was used just as an as an addition of MRP (material requirements planning). Around 1995 ERP solutions represent all main tasks of an enterprise. During this decade, not only big corporations use ERP also governmental agencies, international organizations and large NGOs started to use ERP systems. (Jacobs, 2006)

ERP SYSTEMS

Enterprise resource planning (ERP) is basically a system for integrate all the information related to an entire corporation. This system integrates inside and outside information related to the entire corporation’s process. The goal of an ERP is to drive the information flow seamless between all key business tasks involved in the daily processes and also manage the relations with external stakeholders. In few words thanks to a classical definition of IBM the purpose of an ERP is "Integrating the enterprise through the internet. Extending the enterprise to the Internet". Over the past years, most large corporations and many of mid-sized and small moved to ERP solutions. This enables them to compete in a global wold, facilitating seamless geographical transactions flows along processes and units. The goal is make the most of efficiency, refining interior controls, enabling more accurate business scheduling and producing bigger revenues from their technology investments.

CHARACTERSTICS

According to Chen, 2001 Enterprise Resource Planning (ERP) systems are some of the most complicated information systems in use by the companies. Inside the organization an ERP should be able and support the daily operations of every section of the company. It should drive the information from suppliers finishing at stakeholders and customers. In resume all related to accounting, human resources, payroll, production, sales, client’s management and so on. Another main characteristic and core strength of an ERP system is the real time management of data. Numerous studies done on ERP show that ERP systems are mostly recognized by their transactional capabilities. They are made-up to support day-to-day operations of every unit in a company.

In the real life this comes with an implementation of new software packages. ERP software involves of many enterprise software components that are globally or separately purchased, based on what best encounters the particular requirements and technical competencies of the company.

Each ERP package is dedicated on one area of business practices, like product development or marketing. Some of the more common ERP modules include those for supply chain management, product planning, material purchasing, manufacturing, warehouse management, delivery, accounting, marketing, point-of-sale software, finance or HR.

CURRENT PRACTICES

One of the market leaders, SAP recommends following Accelerated SAP methodology to implement the business processes, automating them and interconnect these modules to have data consistency within the entire system. It consists of the following process steps:

ACCENTURE, AN INSIGHTS

Accenture is the largest business integrator, with experience in all continents with a huge variety of clients. The company has developed a methodology for more than 50 years, leading the market in tailored ERP solutions. The company have extensive experience with the 3 main software, SAP, Oracle and PeopleSoft. The methodology is mainly a phased schema, using the company`s methodology this is structured in a matrix of phases, workstreams and entry/exit criteria. (Accenture, 2013)

The method is divided in planning, analysis, design, build, test and deployment phases. After each phase exit/entry criteria are defined for consider this phase achieved and pass to the next one. Workstreams are areas of work, grouping in teams the people with same skills that will develop a specified task. The workstreams include areas like project management, application, technical architecture, training and performance support.

CRITICAL SUCCESS FACTOR

The first key factor for the success is determined by the characteristics of the software itself and the extended capabilities that it should bring to the company. Firstly the software must be flexible and modular and must support a high variety of functions. For be successful the software must bring to the company better analysis and planning capabilities, filling the information gaps in the organization. Only with the ERP follow the characteristics is considered by the managers and the users an added value to the company and will be a success. In the other hand the traditional functional IS push in the other direction, leading to duplicate information and segregate departments.

IMPLEMENTATION THEORIES

Different businesses may set up the same ERP package in totally different processes. The same industry may set up different software with the same method. (Leon, 2009) Therefore is important to know the different methods and approaches that organizations followed in the past.

Many authors researched about the different ways to implement an ERP. The literature refers to many ways to divide the different ERP implementation theories. Accenture differentiates 3 types:

Roll out, insertion of successive releases in separate systems

Roll-in : insertion of successive releases in the same system

Big Bang as the main alternative, only considered by Accenture for small-medium companies with less than 200 users.

However one of the main manuals about ERP Leon 2009, differentiates up to 5 main ways to implement the ERP: Big Bang, Phased, Parallel, Process Line and Hybrid.

Big Bang Transition Strategy

In this strategy all modules of the ERP system are installed at the same time across all the organization. One of the greater strengths of this method is reduce the cost of integration with a cautious execution. All the company functions across the entire enterprise are migrated to the new system at the same time, normally just in one day or more frequently during a weekend. The positive accomplishment of the transfer with the big bang strategy requires a careful planification and long preparation. The next table shows the most usual advantages and disadvantages.

Advantages

Disadvantages

Execution time is shorter

Deeper managers commitment and employees implication needed

Shorter period of implementation problems

Problems with the details may occur due to the big changes.

Lower cost than phase or parallel strategies

Employees have a shorter period to learn the new procedures

Shorter training period required, because employees are trained only for the new ERP, not for the inheritance system

Complete end-to-end system testing is tough to carry preceding to implementation

Implementation date know, everybody is aware and knows the time.

Fall-back situations are more difficult than initially apparent

Deeper mapping of the process needed that can generate a derived improvement in these processes.

A let-down in one part of the scheme could disturb others

The catch-up period can be shorter

Surely generates a catch-up period

The big bang strategy was the most widely used in the early ages of ERP and the lack of proper preparation and planning generated a high rate of failure. This high degree of failure generates contributed to the design of new methods and contributes to a bad reputation of it among the managers. Anyway, this lack of success in the early stages was caused by a wrong implementation, not to the method itself, that is consider by many authors as the most appropriated for the majority of small and medium organizations.

Phased Transition Strategy

In the phased strategy one practical element is implemented each time, in a sequential order. Independent modules are fitted unit by unit. In a later stage of the project, the modules are integrated in the ERP system. The main benefits of this method are reducing the risks during the installation and the possibility to learn and modify the process after each stage. Normally in this strategy the implementation of one module helps in the further success of the project. The software installed in this methods vary from the previous one, normally they are more complicated, trying to fill the gap between the old method and the new one. This strategy was the most widely used strategy of ERP implementation, especially in organizations that not have strong centrally integrated synchronization in the ERP project.

Parallel Transition Strategy

With the parallel strategy, the new ERP system and the inheritance one are active at the same time. This simultaneous run can vary from just few hours to months or years. All the functional areas are running with both systems at the same time. The biggest strengths of this method are the possibilities of improvement during the process. Also this strategy enables go back to the old system in case of a big failure and specially the daily work of the company not broke down in case of failure of the new system. This strategy also enables number to number comparisons to check if all the processes are running perfectly before change to the ERP system. This method also has disadvantages due to the duplicity of the system, like more workload during the parallel running. This approach was designed for business with critical process that cannot afford a key break down of the system.

Process Line Transition Strategy

This approach breaks the process to handle common business procedures flows or product lines. The process line transition strategy moves the first product line first moved from the inheritance software to the new system. Only when this line achieved positively the transition, the next line is changed to the new software. Normally this strategy starts from the first line in the business chain, but also can be started from the simplest areas in order to continue with more challenging ones. The main advantage if the process is managed well is the faith that the workers will have in the new system, therefore the chances of success increase. In the other hand if the first move results in failure, the further lines or processes will be highly resistant to make the move.

Hybrid Transition Strategy

Hybrid Transition Strategy is a bespoke method, normally a mix of all previous strategies. The complexity of the method varies according the complexity of the organization. Usually larger companies use more complex strategies and single site implementations have simpler processes. The strength of this method is its flexibility, adapted to the exact requirements of the situation. Normally the disadvantages came from higher implementation cost as the process and the software tend to be tailor-made.

ISSUES IN IMPLEMENTATION

The literature indicates that around only the 30-40% of the organizations that implemented ERP where able to accomplish their proposed objectives before implementing it. In the same papers the examples of companies achieving revenue reduction or even losses due to wrongly developed ERP implementations are multiple. As an example, in 2010 Lumber Liquidators, a mid-size US company reported a 45% drop in the benefits due to the reduced productivity generated by an ERP implementation. Apparently the company didn’t train properly the employees and did not change at all the management (Panorama Consulting, 2010). Also, according to CIO Magazine survey more than half of the executives consulted believe that ERP’s paybacks are not meeting the company expectations due to the inflexibility of the process. In the same survey, around 65% of the executives believe that implement an ERP system have an important chance to hurt the company results due to potential implementation problems. (Zafar, 2006)

Therefore is worthwhile to analyse the main factors that can determine whether the process will lead to a success according to organization´s objectives. Several authors have identified an assortment of issues that can be considered to be critical to the positive achievement of an ERP implementation. The most important of these are described in the next table based in (Chang, 2008; Mabert, 2000; Zhang, 2003; Wah, 2000)

Main challenges involved in ERP implementation

Clear understanding of the projects goals.

Users, consultants and vendors need to work as one in order to achieve the general goals of the company. The consultants have to undoubtedly recognize the users' needs and the principal organization realities,

The software set has to be properly customized for the company has to be in tune with the users' requirements and business purposes.

Roles and duties of the personnel have to be clearly recognized, understood and organized in the new schema.

Good reception by employees of the new procedures is a key factor for the accomplishment of the process.

The software has to be fully implemented to accomplish the maximum profit.

Defining the implementation methodology and selection of the wright package.

Integration of all the areas in the ERP.

Correct training of the end users.

Select appropriate consultants

Correct installation of the hardware and software needed for the implementation.

Correct preparation of the implementation guidelines

Proper monitoring after the implementation with the establishment of indicators, factors of success, etc.

REQUIREMENT GATHERING

The main failure is because of the incorrect requirements of the business processes, which we will be discussion of what factors make this step failure and how we are going to tackle it.

The most important thing before think in implement an ERP is to figure out if the company really needs it. An implementation without this issue clearly solved will be for sure a failed implementation because the lack of commitment. Many companies are running under MS Office solutions with the same results than other with more complicated ERP solutions like SAP or Oracle. This solutions bring undoubtedly important competitive advantages but only after a deep reflexion of the company requirements.

SOFTWARE SELECTION

Many managers think that all the software packages do more or less the same, but the right choice of the appropriated software is one of the most important steps in all the process, especially with the huge variety present in the market today. Each company should choose and apply a system that enhances its idiosyncratic competitive assets, trying to overcome company´s competitive faintness.

Normally the different solutions are divided according to company’s size and to the vendors. For Large companies the market is dominated by SAP, Oracle and Microsoft. For midmarket and the small business applications the market is much more fragmentated with multiple vendor choices. For the midmarket the main vendors are Epicor, QAD, Sage, Infor, Lawson or IFS. For the small business the principal choices are Syspro, Visibility, Exact Globe, NetSuite, CDC Software, Consona and Activant Solutions.

ORGANIZATION CHANGE MANAGEMENT

This mass level change through ERP will be discussed in detail, which is the main concerning area while implementing ERP

The traditional structure of many organizations nowadays is not well suited with the ERP systems. Establishing an ERP may force the reengineering of many processes or the creation of new ones. These changes sure will affect the structures, affect corporation´s culture and will imply a big realignment in order to take advantage of all the benefits that ERP systems can bring. If this is not take into consideration and the people is not prepared for the changes, the results will be predictable.

An electronic survey released by Panorama Consulting refers to insufficient attention to change management as the second source of fiasco on ERP implementations just after the lack of definition of the business processes as the main cause. Meagre modification in the organization`s management processes can harm even the best ERP initiative.

Regrettably, many CEOs consider an ERP as simple change of software system. Therefore, they see the problems regarding this change as the main challenge. As we saw in previous chapters the final objective of the ERP should be improve the business and not change the software. Consequently this must be business driven by the top managers and not only by the IT department. (Minahan, 1998)

Is difficult to talk about common changes that all companies moving to enterprise sollutions should make on their organization management. However, Cornellius, 2010 wrote about some common issues. Big corporations are often spread geographically. These corporations often face the biggest issue on the communication of the changes generated by the ERP project. Small companies found often the lack of training as the main drawback. Also is some common changes driven by the implementation project or by the new software itself as we can see in the next figure:

CHANGES DRIVEN BY THE IMPLEMENTATION PROJECT

CHANGES DRIVEN BY THE NEW SOFTWARE

Crew should work across functional lines and on teams, often for the first time.

Business, operating processes and procedures will be changed.

Decisions will be made through functional positions.

New strategies and actions will be developed.

Workloads will rise during project`s implementation.

Abilities for the new job should be learned.

Common services can be changed temporarily.

Specific career roles could vary.

Staff must learn and perform new abilities whereas handling present workload.

New reporting arrangements could touch persons and entire roles.

In all cases, organizations involved in an ERP process must adopt new procedures, new working habits, new communication canals, new software, etc.. Always as the company size increases more complicated is the process but the benefits can be bigger.

TEAM, IMPLEMENTING ERP

Effective ERP execution is accomplished when the individuals, procedures and technology runs in harmony to reach the goals of the company. Here the company team is the most important part for achieve the success. Many companies see the ERP as an opportunity to change and improve but many times the workers see it as a new bothering IT wisecrack with the aim of change their habits and make their life at the office more difficult. Is in the hand of the managers and consultants team change this common thought and switch it to an opportunity to review and improve groups’ dynamics.

As in all of the business process involving the end users, in this case company workers, is the best way to success. All authors consulted in the literature agree in the two main sources of resistance to innovations in a company. The first is apparent risk, refers to one´s sensitivity of the risk associated with the decision of change. In this case top managers should change this perception into an opportunity perception. The second source, usually the most important is the habit. Habit denotes to practices and routines that one is doing currently. In this case the managers should try to change this resistance to an opportunity also; the opportunity to learn, to improve and to rise. (Umble, 2003)

PEOPLE AND PROCESS

Change management, which contains communications and other actions needed to involve staffs, is an indispensable element of successful ERP. It's vital to recognize that technology by itself does not address the corporate process changes that many employees and associates find challenging. True change management comprehends a wider scope.

Functional business information systems used in the past isolate one unit from the other generating duplicate, unreliable, mistaken and costly data entries. Implementing correctly an ERP implies that the data are stored and managed by one units but are used by all the other units, seamless data maintenance includes a huge degree of cross-functional partnership and also understanding. Since ERP comprises various components that are complexly linked with each other, data should be managed correctly to guarantee their precision. In this aspect is important to consider that switching to an ERP will bring changes in the way persons work, procedures and roles will be modified and there may be job cuts and rationalization or changes of tasks within and between units. Only when all the staff will understand and address this issues the process will have opportunity to success. (Ngai, 2008; Otieno, 2008)

TRANSITION

The key decision in the transition process is the cutoff time, it will determine what is consider past data and new data and will involve manual entry data since ERP is a ‘go live’ system. Normally companies are choosing the end of an accounting year.

The transition from existing system to ERP system can take from minimum 6 months to maximum 5 years. While, for migrating from Manual system to ERP system, the tenure could be around a year to 2 years. This is caused by the different issues pertaining to the deployment strategy of an ERP system.

MAINTENANCE OF PAST DATA

We will be going through the white papers, published earlier in different journals related to the subject "Issues in Implementing ERP systems", as well as "Challenges and Risks", so as to come up with what the research has been done, what other researchers concluded and recommended and finally will propose our solution. We will focus on Oil & Gas industry to implement ERP system, and would be focusing on reducing the cost and implementation time while equally the process for effective utilization of the ERP system. We have selected SAP ERP as our system, which is being at the top in the current market, while being deployed in major fortune 500 companies.

Loading previous data is one of the key issues in an ERP implementation. All the companies involved in a migration are willing to load the historical data in the new infrastructure, but this can generate many problems. Firstly we have to question the importance of the past data and if the befits derived from it can balance the cost and problems that this will involve. Generally past data may do not have any transactional or reporting significance because all the report related to this data are already done and closed. Another aspect is the bugs that this data can introduce in the current data, corrupting it in some cases. Also the past data can represent the majority of the data present in the ERP system, reducing its performance. In this case is really useful the example of make a move from an old house to a new one. We want to fill the new house with all the old furniture having no space for the new one?. Witch belongings are mandatory to move? These are the main questions that a company moving to an ERP should ask. This was one of the main problems of one of the most widely studied cases of ERP implementation failure, Nike in 2000. The profits of the company dropped 100 USD million dollars caused by a bad management of the existing stocks, clearly a problem with data migration. (Nelson, 2007)

Normally companies are migrating as much data as possible without compromising the operability of the new one. This process is different from one system to another, SAP and Oracle will have much more flexibility compared to PeopleSoft but implicates also a more complicated implementation.

CASE STUDY

In this part of the paper we will focus in how to implement an ERP in an oil sector company. Our company handles drilling operations essential for exploration in order to discover new oil and gas fields and mainly maintenance tasks onto land and offshore areas. The company have 3 different units:

Operations: This area includes drilling operations and logistic support.

Technical: This section is in charge of the technical support and its subdivided into commercial, engineering and maintenance. This area has 2 warehouses and 2 workshops.

Administration: This area is based in the central office and is in charge of HR, finance, payroll, general services and IT

The company was using in-house data based applications for finance, inventory, work orders, etc. All of these applications were settled by third-party companies and then maintained and improved by the IT company personnel. Each area has its own application, all resulting in a highly compartmentalized structure with few data share between the units. The only centralized part was the server with management shared information. This structure was facing important problems:

Lack of automatic processes using data application

High compartmentalization of the information, lack of exchange

Problems with the applications maintenance due failures in the software documentation

Lack of support in the decision making process

Cross functional processes were not supported.

Inappropriate systems control, generating little confidence in the system´s generated reports

The core operations were handled manually. Only the staff in the central office have access to this software.

Lack of process documentation, the only source of important information were the long employed staff, leading to a serious organizational risk.

PROPOSED METHODOLOGY

Objectives Setting

With this scenario, implement an ERP was a clear option. The first step is set the expectations and beginning the process with a workshop (Hawking, 2007). The top managers established the following requirements:

Shortest implementation time possible.

Lower initial cost because will increase at the end of the process due to the high variance cost.

From this initial meeting an internal multidisciplinary taskforce was established to lead this process, with staff from all the units. The focal points were chosen because the deep knowledge of the different units. These personnel will be almost liberated of their day to day duties, dedicating almost all day to prepare the process.

SOFTWARE SELECTION

After this initial meeting the most important thing is select the ERP system. The managers conclude that should be a single ERP, using bespoke different modules was discarded because the cost and the time to implement. SAP or Oracle are the leaders among oil & gas companies. Hiring an external consultant to research the company´s needs and advice about the most suitable software was rejected due to the cost. Therefore the strategy will be set up meetings with other companies to know about previous implementations. After it, the SAP solution was presented by the taskforce to the top managers and was selected.

The price was around 6£ million, dedicated mainly to labour with 63%, followed by new software and hardware with a 16% and finally operating and rent expenses with 5% (Swartz, 2001).

METHOD

This part will provide in-depth analysis of proposed methodology to implement business processes through ERP system. An accurate approach is based into look at past experiences of several implementations and make corrections around the shared problems that have raised in the past.

The taskforce had to report about the two most important tactical options. The first is chose the schema. After a review of the literature and internet resources the taskforce proposed a combined scheme for our company, taking the classical advantages to the Big Bang implementations with the ASAP methodology proposed by SAP, a major German software corporation. As we saw in previously, Big Bang scheme implies in a major single event. ASAP methodology is mainly sequential so we will take the carefully ASAP approach to the major switch to the new ERP system. The goal is optimize it and propose the new methodology to make the transition as smooth and short as possible.

Part of the method is select how this will be implemented practically, In house or Third Party. Concerned by the budget the taskforce selected hire 10 SAP consultants and a project manager. In this case the in-house expertise was not enough for this project and the company selected outsourcing it (Chen, 2009). The consultants were specialized in different units, Programming of business application, security administrator and database administrator. MySAP will be implemented by these professionals.

The next task of the consultants and the taskforce is elaborating the company blueprints dedicated to define and map the company´s processes. The corporation used this process as an opportunity to implement best practices at the same time, especially in HR.

DESIGN AND DEVELOPMENT

In ERP project, the decisions took in this early stage will have an important impact on actions and results in further stages (Chen, 2009). The main duties during this part are define SAP GUI, define the details of the transaction, and prepare reporting formats and input and output layouts. After it the document was presented by the team of consultants to the taskforce and approved.

Regarding the technical part, the new systems purchased to Compaq and Dell due to long term agreements were equipped with Microsoft software. After the design phase the team moved to the next phase, development. During this period the next tasks were finished

Set up of the hardware

Configuration of the server and installation of Microsoft SQL.

Connexion, configuration and testing on distinct servers

SAP applications configuration

Conversion of previous applications and data

Implementation

Just after the SAP was configured, the next step is conducting the test of the users reception. The internal workforce team were the first in test the services after a short term training. The company decided to train the unit leaders and this will further train all the staff. After the 10th month the system was rolled out and went live. The top managers decide to renovate the contracts of the SAP technical support in order to supervise the process and act in case of technical or functional problems.

BENEFITS

The top managers had great hopes for the new system and were targeting to gather immediate paybacks just after carrying out the ERP. The ERP implementation achieved the basic goals regarding the quick implementation, and the low budget. Anyway after the implementation the progress did not happen as the managers expected. Four were the main problems,

Non connected units to SAP, caused by the lack of specific software.

Poor accuracy of the SAP data.

Lack of certain controls in SAP.

Some transactions took more time compared to the preSAP status, even compared to the manual procedures.

IMPLICATIONS

In order to solve the previous issues a committee was implemented in order to perform a deep assessment and try to fill the gaps. This were the main conclusions of the review committee,

Inappropriate change management, the top managers were more interested in be under the budget and few efforts were put in plan the transition from the old process to a more sophisticated ERP scenario.

Employees’ consideration of the SAP. As we saw before, implicate the employees in the SAP as it will be for their own benefit is one of the key factors for success. If a rumour of cutting post is spread the integrity of the system will be compromised.

Another main problem was the short or inexistent training to the end users. This caused inaccuracy and inconsistency in the data.

Derived from this problem, the approach of train the trainers was a complete failure. The trainees took their knowledge as an increase of power in the company and were many times hesitant to share this new knowledge.

The use of generalist software and not a bespoke one or a sector oriented one generated some offSAP units.

COMMON FACTORS

In our imaginary company a year has passed after the decision of implement an ERP and the results are variable. Some areas are facing great enhancements after the SAP, with a seamless smooth data managing, especially the procurement or financial related. However, others are facing at least the same problems than before if not bigger, specially integrated planning or engineering.

This case study was extracted from several experiences present in the literature. In the same papers we can find the key problems that this company has faced. Companies are normally very afraid of the timetable and the budget. Is important to keep the process under the budget but not as important as its final success. (Mabert, 2003). Switch to an ERP is a huge investment for a company, within this process is mandatory to develop substantial organizational changes as a must and not only as an opportunity (Tchokogue, 2005)

The managers need to develop a shared vision and connect during all the process with the employees (Chang, 2008; Motwani, 2005). Education normally is a critical factor. This training must be extended to all end users, those who finally will be responsible of feeding and using the enterprise architecture (Umble, 2003; Reimers, 2003).

The new software must be compatible with all business areas and procedures; otherwise some units will be virtually out of the system, generating major problems for important duties like reporting or managing. (Soh, 2000; Van Everdingen, 2000).

CONCLUSION

Nowadays an ERP system is the ideal way to drive all the information managed by any kind of organization. In this paper we started from a literature review in order to know past experiences and theories related to ERP systems. As we saw, an implementation of an ERP is a big opportunity for improve the process and the day by day business practices of a company, transforming it in a more efficient and effective organization.

This improvements can generate an important grow in the revenues. However if this process is not implemented correctly, this can generate huge problems and an important book loss. In the last part of the paper we try to apply all this experiences to an ideal oil & gas company. From this application experience, it can be seen that it is not a specific technology platform or software application that can change an organization. Instead, it is the way the organization applies and implements the technology that makes it effective.