2004. Enterprise Resource Planning Success a Management Theory Approach to Critical Success Factors

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ENTERPRISE RESOURCE PLANNING SUCCESS:

A MANAGEMENT THEORY APPROACH TO CRITICAL

SUCCESS FACTORS

BY

JOSEPH BRADLEY

A Dissertation submitted to the Faculty of Claremont Graduate University inpartial fulfillment of the requirements for the degree of Doctor of Philosophy

in the Graduate Faculty of Executive Management

CLAREMONT, CALIFORNIA

2004

Approve*

PauKGray, Bab.

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UMI Number: 3139266

Copyright 2004 by

Bradley, Joseph

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We, the undersigned, certify that we have read this dissertation of F. Joseph Bradley and

approve it as adequate in scope and quality for the degree o f Doctor of Philosophy.

Dissertation Committee:

'aul Gray, CommittepChair

7

Date

gmA, VYjQfftMdL6____________ ! 9.,

bph Mafciarello, Committee Member Date

Conrad Shayo, Committee Member Date



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Abstract Of The Dissertation

ENTERPRISE RESOURCE PLANNING SUCCESS:

A MANAGEMENT THEORY APPROACH TOCRITICAL SUCCESS FACTORS

by

JOSEPH BRADLEY

CLAREMONT GRADUATE UNIVERSITY: 2004

This study examines the critical success factors for implementing

Enterprise Resource Planning systems in the framework of classical

management theory. Sneller (1986), in an earlier study, identified critical

success factors in the implementation of materials requirements planning

systems (MRP). Since the Sneller study, software vendors have enhanced the

functionality of MRP systems, first by developing manufacturing resource

planning systems (MRP II) and subsequently by developing enterprise resource

planning systems (ERP). As a result of expanded functionality, implementation

of such systems affects a much wider portion of the business enterprise than

operations and logistics. ERP systems are complex and expensive to

implement. This study will examine critical success factors for ERP systems

implementation suggested in the Information Systems and ERP literature.

Snellers work on MRP surveyed material managers, as MRP dealt with their

functional areas of responsibilities. This study surveys a wider range of top



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functional managers to reflect wider organizational impact of the expanded

functionality of ERP. Eight implementation projects were examined. This study

uses a six dimensional view (William H. DeLone & McLean, 1992) of success

compared to the two dimensional view of success used by Sneller.

The purpose of this research is to investigate the critical success factors

for a successful ERP implementation. Additional questions that will be

investigated are:

Are the companys specific goals for embarking on an ERP project related

to project success?

- Is prior organizational experience with a major systems implementation

(such as MRP or MRP II) a critical success factor?

Does an ERP system lead to competitive advantage, or is it a competitive

necessity?

The study finds that the experience of the project manager, quantity and

quality of training and the effectiveness of a project champion lead to successful

implementations. Both successful and unsuccessful firms use practices such as

establishment of a project headed by a project manager, training, use of

consultants, and control by a steering committee. No evidence was found to

support integration of business processing and IT planning, reporting level of

project manager, involvement of general management or role of management in

reducing user resistance.



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ACKNOWLEDGMENTS

The journey to a PhD is not completed without the support, friendship and

advice of numerous people and organizations.

The College of Business at Central Washington University provided me

financial support for the production and mailing of my questionnaires and travel

to Houston to conduct three case studies.

Loren Carroll, a friend and business associate since 1965, was kind

enough to allow me to conduct case studies in the two companies he manages,

M-l Drilling Fluids and Smith International Inc. Janet Hall, Director of Information

Technology at M-l Drilling Fluid, arranged the details my case study visits at both

M-l and Smith and proof read the M-l case for accuracy. Many other Smith and

M-l employees took their time to discuss their involvement in the ERP project.

The faculty at the Drucker Graduate School of Management all contributed

to my education in management. I like to mention a few who had a special

impact.

Richard Ellsworth got me hooked on the Drucker EMBA program

with his Current Issues in Strategic Management class, my first

class in the EMBA program.

Vijay Sathe ignited my desire to continue studying management

and to pursue a doctoral degree in his course in Strategy and

Organizations.

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Peter Ring Smith (Visiting Professor from Loyola Marymount

University) provided me with the confidence that I could complete

the PhD program, treating all of us in his strategy literature review

as emerging scholars.

Robin Cooper provided me with the desire to continue my

education and the inspiration to embark on a teaching career.

Don Griesinger provided support to me along with all the doctoral

students in his EMGT 494 doctoral research seminars and literature

review class.

My dissertation committee provided immeasurable support and

encouragement. My chair, Paul Gray, provided me the guidance, help,

inspiration, and encouragement I needed to complete the dissertation.

Members of my cohort group of the entering PhD class of 1998, Marie

Tumolo and Olivia Neece, were an important source of support and

encouragement. Drucker students Bill Allison and Bennett McClellan assisted in

contacts for case studies and questionnaires.

My wife, Marilyn, endured my absence weekends and evenings and my

stress while attending classes and writing my dissertation, even though she

thought I was crazy embarking on a new career when she thought I should be

thinking about retirement and taking life easier. She also folded and stuffed

hundreds of questionnaires for me.

Thanks to all of you.

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TABLE OF CONTENTS

CHAPTER 1- INTRODUCTION 1

DESCRIPTION OF ERP SYSTEMS 2

WHY DO FIRMS ADOPT ERP SYSTEMS? 7

WHY DO FIRMS NOT ADOPT ERP SYSTEMS? 11

RISKS ASSOCIATED WITH ERP IMPLEMENTATION 13

CRITICAL SUCCESS FACTORS 15

CRITICAL SUCCESS FACTORS FOUND

PREVIOUSLY

16

DEFINITION OF SUCCESS 22

IMPORTANCE OF TOPIC 24

CHANGES SINCE SNELLERS STUDY 26

CHAPTER II - LITERATURE REVIEW 28

OVERVIEW 28

MRP, MRPII AND ERPAN EVOLUTION 28

OPERATIONAL PLANNING MODEL 37

PLANNING 38

ORGANIZING 40

STAFFING 42

LEADING 47

CONTROLLING 51

MEASURES OF SUCCESS 53

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CHAPTER III - RESEARCH QUESTION FRAMEWORK, ANDMETHODOLOGY

59

METHODS 65

CASE STUDIES 65

QUESTIONNAIRE 66

CHAPTER IV - CASE STUDIES 73

INTRODUCTION 73

CASE 1 - PACIFIC CLAY PRODUCTS INC 77

CASE 2 & 3 SMITH INTERNATIONAL, INC. 91

CASE 2 - SMITH BITS/SMITH SERVICES 93

CASE 3 - M-l, LLC 103

CASE 4 - PACIFIC AEROSPACE 117

CASE 5 - LITTON INDUSTRIES 125

CASE 6 - HALLIBURTON 136

CASE 7 - PACCAR / KENMEX 145

CASE 8 - NORTHROP GRUMMAN 153

SUMMARY OF CASE STUDIES 159

CHAPTER V ANALYSIS METHODS AND RESULTS 162

DEMOGRAPHIC INFORMATION 163

SUCCESSFUL VS. UNSUCCESSFUL 166

HYPOTHESES 168

OTHER FINDING 225

COMPANY GOALS 225

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COMPETITIVE ADVANTAGE 229

PRIOR MAJOR SYSTEMS IMPLEMENTATIONEXPERIENCE

231

CHAPTER VI. CONCLUSIONS 233

APPENDIX 1. ERP IMPLEMENTATION QUESTIONNAIRE 262

APPENDIX II. QUESTIONNAIRE TRANSMITTAL LETTER 274

APPENDIX III. CASE STUDY FIRM CONSENT LETTER 276

APPENDIX IV. CASE STUDY INDIVIDUAL CONSENT LETTER 278

APPENDIX V. CASE STUDY INTERVIEW QUESTIONS 280

APPENDIX VI. MRP IMPLEMENTATION QUESTIONNAIRE 288

APPENDIX VII FREQUENCY ANALYSIS OF INDEPENDENTVARIABLES

295

APPENDIX VIII GLOSSARY 309

REFERENCES 312



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Index of Tables

Table No. Description PageChapter 1

1-1 Some Functions Available in SAP R/3 6I-2 Nahs Critical Success Factors 21Chapter II

11-1 Evolution of ERP Systems 29II-2 Typical SAP Functions 35Chapter IVIV-1 Summary of Case Study Site Characteristics 76IV-2 Summary of Case Study Findings 160Chapter V

V-1 Questionnaire Mailing Summary 162V-2 Primary Products of Respondents (V57) 164V-3 Sales Volume of Respondents (V58) 164V-4 Implementation Completion Dates (V59) 164V-5 ERP Software Used by Respondents (V60) 165V-6 Implementation Method (V61) 165V-7 Functional Area of Respondent (V62) 166V-8 Variable V1 Success 166V-9 Background Information Results 168V-10 Planning Variables - V15 through V18 173

V-11 T-test for Variables V15 to V18 175V-12 Multiple Regression Results of Variables V15 to V18with V12

176

V-13 Multiple Regression Results of Variables V15 to V18with V13

177

V-14 Organizing Variables - V19 through V22 178V-15 T-test for Variables V19 to V22 179V-16 Multiple Regression Results of Variables V19 to V22 180V-17 Multiple Regression Results of Variables V19 to V22

with V12182

V-18 Multiple Regression Results of Variables V19 to V22

with V13

183

V-19 Organizational Variables - V23 through V26 184V-20 T-test for Variables V23 to V26 185V-21 Multiple Regression Results of Variables V31 to V37

with V12186

V-22 Staffing Variables - V27 through V-30 187V-23 T-test for Variables V27 to V30 188

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V-24 Multiple Regression Results of Variables V27 to V30 189

V-25 Standardized Coefficients and Correlations ofPredictor Variables V27 and V30

190

V-26 Multiple Regression Results of Variables V27 to V30

with V12

192

V-27 Standardized Coefficients and Correlations ofPredictor Variables with V12r

193


194

V-29 Standardized Coefficients and Correlations ofPredictor Variables V27 to V30 with V13r

195

V-30 Staffing Variables - V31 through V37 196V-31 T-test for Variables V31 through V37 197


200

V-33 Standardized Coefficients and Correlations ofPredictor Variables V31 to V37 with V12r

201

V-34 Multiple Regression Results of Variables V31through V37 with V13

202

V-35 Staffing Variables - V38 through V41 204

V-36 T-test for Variables V38 through V41 205V-37 Leading Variables - V16, V18, V42 207V-38 T-test for Variable V16, V18 and V42 208V-39 Leading Variables - V43 through V45 209V-40 T-test for Variables V43 to V45 210V-41 Multiple Regression Results of Variables V43 to V45 210V-42 Standardized Coefficients and Correlations of

Predictor Variable V43211


212

V-44 Multiple Regression Results of Variables V 213V-45 Leading Variables - V46 through V49 214V-46 T-test for Variables V46 through V49 215V-47 Multiple Regression Results of Variables V46 to V49

with V12216

V-48 Leading Variables - V50 through V54 218

V-49 T-test for Variables V50 to V54 219V-50 Multiple Regression Results of Variables V50 to V54

with V12220


222

V-52 Summary of Statistical Analysis of Hypotheses 224



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V-53 Company Specific Goals for ERP Implementation(V14)

225

V-54 Company Specific Goals (V14) 225V-55 Multiple Regression Results of Variables V14a1

through V14g1

228

V-56 T-test for Variable V55 229V-57 Multiple Regression Analysis Results of Variable

V55229

V-58 Standardized Coefficients and Correlations ofPredictor Variable V100

231

V-59 Prior Major Systems Experience (V56) 231Chapter VIVI-1 Levels of Business Planning and IT Planning

Integration235

Index of Figures

11-1 Evolution of ERP System 29II-2 Information Systems Success Model 56



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CHAPTER I

INTRODUCTION

Enterprise systems appear to be a dream come true. Thesecommercial software packages promise the integration of all theinformation flowing through the company - financial and accountinginformation, human resource information, supply chain information,customer information. For managers who have struggled, at greatexpense and with great frustration, with incompatible informationsystems and inconsistent operating practices, the promise of an off-the-shelf solution to the problem of business integration is

enticing.(Davenport, 1998)

In the mid-1990s, businesses around the world were spending

approximately $10 billion per year on enterprise resource planning systems

(ERP) and about the same amount on consultants to install these systems

(Davenport, 1998). An AMR study states that in 2001 firms were expected to

invest more than $47 billion on enterprise systems (ES) packages (Cotteleer,

2002). Another AMR research study indicates that ERP will remain the biggest

segment of large and mid-size companies IT application budgets through 2004

(Seewald, 2002). The magnitude of this expenditure makes knowledge of the

factors most likely to result in successful ERP systems implementation a critically

important topic for managers embarking on such projects and academics

studying such implementations. Managerial and economic resources are scarce

in all firms. Determination of the critical success factors will help management in

allocating resources appropriately. In addition, ERP can be viewed as the first

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wave of enterprise systems applications including customer relationship

management (CRM) and supply chain management (SCM). Lessons learned

from ERP will contribute to successful implementations of these systems (Brown

& Vessey, 2003).

In this introduction we will discuss the following:

1. The nature of enterprise resource planning systems

2. The reasons firms adopt these systems

3. The reasons firms do not adopt ERP systems

4. Risk associated with ERP implementation

5. Critical success factors found previously

6. Definitions of success for enterprise systems.

7. Importance of the topic

DESCRIPTION OF ENTERPRISE RESOURCE PLANNING SYSTEMS.

Enterprise resource planning systems (ERP), also known as enterprise

systems (ES), evolved from material requirements planning (MRP) systems.

ERP systems claim to be off-the-shelf solutions to a myriad of business

problems. These integrated ERP packages replace hard-to-maintain solutions

created by the IS departments of the firms or older off-the-shelf packages that

often offered only piecemeal solutions. These older systems are frequently

referred to as legacy systems. Legacy systems are transaction processing

systems designed to perform specific tasks. Many of these systems became

outdated as business needs changed and the hardware and software available in



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the marketplace improved (Applegate, McFarlan, & McKenney, 1999). However,

ERP systems are expensive and difficult to implement, often imposing their own

logic on a companys strategy and existing culture (Pozzebon, 2000). ERP

implementations are often complex and experience serious problems. The

determinants of a successful ERP system implementation are still poorly

understood. (Davenport, 1998) A recent summary of ERP literature states that

while the difficulties and failures or ERP implementations have been widely cited

in the literature, research on critical success factors (CSFs) in ERP

implementation is rare and fragmented. (Nah, Lau, & Kuang, 2001)

ERP implementations can be characterized by three distinguishing

characteristics. (Somers, Ragowsky, Nelson, & Stern, 2001)

1. These systems are profoundly complex pieces of software, and

installing them requires large investments of money, time and expertise.

(Davenport, 1998)

2. ERP systems are packages that may require changes in business

processes and procedures, may induce customization, and leave the firm

dependent on the vendor for support and updates (Lucas, Walton, & Ginsberg,

1988).

3. The adopting firm is usually required to reengineer business

processes. ERP implementations must be managed as a program of broad

organizational change rather than a software implementation (Markus & Tanis,

2000; Somers et al., 2001).



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MRP systems were developed in the 1960s and 1970s as the central

activity in material planning and control. The managerial objectives of MRP are

to provide the right part at the right time to meet the schedules for completed

products. (Vollmann, Berry, & Whybark, 1984) MRP systems work backwards

from the required delivery date of a product to the date raw material orders need

to be placed and the date production of the product should begin. MRP

accomplished these tasks by considering required production time, inventory on

hand, inventory on order, and work in process. Based on this analysis, the MRP

system recommends when additional material should be purchased and in what

quantities. When properly used, this technique reduces the level of inventory

necessary and still ensures raw materials will be on hand when needed for

production. Reducing the amount of inventory required to be on hand frees up

cash for other purposes and minimizes the firms exposure to inventory losses

from obsolescence. A weakness of MRP systems was that these systems use

an infinite capacity-planning model (Palaniswamy & Frank, 2000). This model

does not take into account the capacity of each work center and can suggest an

unrealistic schedule that would overload individual work centers.

An extension of MRP is manufacturing resource planning or MRP II. In

addition to planning inventory purchases, MRP II used the database to calculate

expected cash flows, machinery and equipment needs, labor needs and tooling

requirements (Schonberger, 1986). MRP II is a sequential technique that is

used for converting a master production schedule (MPS) of the end products into



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a detailed schedule for raw materials and components. It starts with sales and

operation planning and demand management and ends with a detailed schedule

for components to be made in-house as well as purchased from vendors.

(Palaniswamy & Frank, 2000)

MRP II is an automated system that makes scheduling and planning of all

of a manufacturing enterprises resources practical. (Gray, 1986) Gray points

out the MRP II solves what Oliver Wight, a pioneer in the inventory and

production control field, defined as the universal manufacturing equation; what

are we going to make? What does it take to make it? What do we have? What

do we need to get? MRP II answers the question, What do we really need, and

when do we need it? by taking a companys high level plans and breaking them

down to detailed schedules for material, capacity, cash and the like.

ERP expands the functionality of MRP and MRP II by integrating

information throughout the entire organization in a single database. A typical

ERP system offers functionality in financial information, human resources,

operations and logistics, and sales and marketing, in addition to operations and

logistics. The great appeal of ERPs is that employees enter information only

once and that information is then available to all systems companywide....This

means everyone in the company can make decisions based on accurate, real

time information (Laughlin, 1999).

Laughlin describes the typical processes involved in processing an order

using an ERP system. For example, a customer service agent receives a phone



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call from an existing customer. The agent quickly locates the customers

account, records the order details, prices the order, and checks the availability

date. The customer confirms the order details and the agent books the order.

That single entry triggers everything from the allocation of the finished product

against the order to delivery and billing. That is, based on existing demand and

allocation rules, the ERP will determine whether the product should come from

current finished goods in a warehouse, in-process goods, scheduled production,

or new production. It will set the order up for shipment based on information from

either the customer or the customer master record, and, once the order is

shipped, prepare an invoice and an accounts receivable entry (Laughlin, 1999).

TABLE 1-1. SOME FUNCTIONS AVAILABLE IN SAP R/3

Financials Operations and Loqistics

Accounts receivable and payable Inventory managementAsset accounting Material requirements planning

Cash management and forecasting Plant maintenanceCost-element and cost-center Production planningExecutive information systems Project managementFinancial consolidations PurchasingGeneral ledger Quality managementProduct-cost accounting Routing managementProfitability analysis ShippingProfit-center accounting Vendor evaluationStandard and period-related costing

Human Resources Sales and Marketina

Human-resources time accounting Order managementPayroll PricingPersonnel planning Sales managementTravel expenses Sales planning

Source: Davenport (1998)



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A list of some of the functions of SAP R/3, a popular ERP package, is

shown in Table 1-1. Companies adopting ERP can install some or all of the

functions as needed.

ERP systems contain several configuration options for each business

process based on best practices. However, this functionality may not fit the

existing business processes of the firm adopting ERP, forcing the firm to

reengineer its business processes to conform to the software package options.

The resulting organizational change may be a significant challenge to the firm.

ERP implementations usually require people to create new work relationships,

share information that was once closely guarded, and make business decisions

they never were required to make (Appleton, 1997). Laughlin describes

organizational resistance as a common but intangible foe and a frequent source

of train wrecks in ERP implementations (Laughlin, 1999).

WHY DO FIRMS ADOPT ERP?

Firms adopting ERP may have widely different goals. Markus and Tanis

(2000) identify technical reasons and business reasons for adoption. Among the

technical reasons are:

Reducing systems operating costs,

Solving specific problems such as Y2K,

Accommodating increased system capacity, and

Solving maintenance problems with legacy systems.

Business reasons may include:

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The ability to present a single face to the customer

The ability to quote realistic delivery dates based on current inventory and

shop capacity,

Accommodation of business growth,

Improvement of informal or inefficient business processes,

Standardize data,

Reduction of inventory carrying costs, and

Elimination of delays and errors in filling customer orders.

Watson and Schneider (1999) attribute the rapid growth of the commercial

market for ERP to the following factors:

Use of the popular client/server platform

Can be used as an enabler for reengineering projects

Y2K compliant

Marketed to CEOs and CFOs as strategic solutions rather than

as transaction processing software

A way to outsource a significant part of the IS function. (Watson &

Schneider, 1999)

A study of member firms of the Financial Executives Institute examined

the relationship between ERP adoption and environmental, strategic and

structural determinants. The study found that ERP adoption was more likely

under the following contingencies:

Coordination is critical to the organization



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The firm follows a low-cost or low-price strategy

The firm is centralized

The firm follows a top-down financial strategy

The firm differentiates itself based on technology rather than

marketing. (Banker, Janakiraman, Konstans, & Slaughter, 2000)

An example of a decision to adopt an ERP system is provided by Geneva

Pharmaceuticals, a manufacturer of generic drugs. Faced with eroding margins

and continuing price pressure, the existing systems were proving inadequate.

Data shared across business units had to be re-keyed resulting in frequent

errors. Data was locked in functional silos and did not support new processes.

Geneva adopted ERP to solve the following problems:

implement best practices in business processes,

integrate data across business units (hence reduce re-keying and

maintenance costs),

enforce data standardization (to reduce software maintenance

costs),

integrate well with new technologies or systems of acquired

companies,

provide scalability with growing product and customer base, and

be Y2K (year 2000) compliant (Bhattacherjee, 2000).

Rohm and Haas embarked on a major SAP implementation in the midst of

a 40-company buying spree that left the company in a state of technological

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10

chaos, with 64 different systems running its critical tasks. The chemical industry

was at an all time low and despite sales increases from $3.7 billion to $5.3 billion,

headcount had doubled and return on equity fell by more than half to 12%.

Rohm and Haas spent over $300 million on the project. As of 2003, 80% of the

company is using SAP. (Schoenberger, 2003) For Rohm and Haas, the huge

expenditure of ERP was a strategic necessity, not a luxury.

A further reason for the adoption of complex information technologies,

such as ERP, arises from the examination of the process of information adoption.

Social groups that have a vested interest in their promotion promote the ideas

and knowledge underlying complex information technologies. Many firms

adopted these technologies with very little real understanding about their

complexity, with a resultant high level of failure (Newell, Swan, & Galliers, 2000).

New institutional theory provides further support for the adoption of

information systems marketed aggressively to CEOs and CFOs. Top managers

may adopt new system through a process of mimetic isomorphism, that is,

organizations seek legitimacy by imitating other organizations in their institutional

fields or organizations that interact in networks- i.e., customers, suppliers,

competitors. The adoption of much of the quality movement can be attributed to

this phenomenon (DiMaggio & Powell, 1983). ERP may be another example.

The role of information technology in creating sustainable competitive

advantage may be another reason for adopting new information systems.

Information technology may have a role in creating sustained competitive



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advantage. This belief is based on the two assertions underlying a resource-

based view of the firm: 1.) that resources and capabilities are different in different

firms, 2.) and these differences can be long lasting. (Barney, 1991) Standard, off

the shelf software packages, like ERP solutions, are available to all firms that can

afford to pay for them, so ERP systems would not be the source of resource

heterogeneity. However, the capability of using packaged software system

effectively may not be homogeneous among firms. If K-Mart could imitate

WalMarts system (i.e., the hardware and software), but could not use it as

effectively as WalMart, WalMarts system could still be a source of sustained

competitive advantage (Mata, Fuerst, & Barney, 1995).

WHY FIRMS DO NOT ADOPT ERP SYSTEMS

Markus and Tanis (2000) identified three very broad categories of reasons

why firms that otherwise have all or some of the reasons to adopt ERP systems,

do not adopt it or only adopt ERP in part. These firms may adopt only certain

modules and rely on legacy systems or new custom systems for their needs.

Other firms may begin an implementation only to discontinue it for a variety of

reasons. The reason for this non-adoption or partial adoption can be categorized

as follows:

1. Lack of feature-function fit

2. Company growth, strategic flexibility and decentralized decision

making

3. Availability of alternatives to increase systems integration.



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Lack of feature-function fit may be due to the design of most ERP for

discrete manufacturing. Many companies have specialized processes common

to their industry, which may not be solved by the best practices embedded in

ERP systems. The various modules may not fully support process

manufacturing industries, such as food processing and paper manufacturing,

project industries, such as aerospace, or industries that manufacture products

with dimensionality, such as clothing or footwear.

Companies concerned with maintaining rapid growth rates, those needing

strategic flexibility and those without a top down decision making style may be

non-adopters or partial adopters of ERP systems. Dell Computer Corp. planned

full implementation of SAP R/3 but discontinued the implementation after

installing the human resource module. Dells CIO expressed concern with the

softwares ability to keep pace with Dells extraordinary growth rate. Visio, a

software company subsequently acquired by Microsoft, expressed concern with

the ability of SAP to handle the frequent changes it required to its sales analysis

and commission requirements (Markus & Tanis, 2000).

The experiences of Dell and Visio focus on the need for efficiency and

flexibility in dealing with the external environment and internal processes. In a

stable environment, mechanistic structures are appropriate consisting of high

degrees of standardization, formalization, specialization and hierarchy. In a

dynamic environment, organic structures are needed to enable organizations to

be flexible to change products, processes and structures. In these organizations



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low level of standardization, formalization, specialization and hierarchy are most

appropriate. ERP may maximize organizational efficiency at the cost of flexibility

(Newell, Huang, Galliers, & Pan, 2003).

Lean enterprises succeed as a growth strategy for increasing sales by

trimming the companys product delivery system into a competitive weapon.

Lean enterprises have difficulty using ERP systems due to the lack of flexibility.

ERP creates many nonvalue-added transactions by making companies track

every activity and material price in the factory. This is counter to Lean

philosophy, which aims at speeding up and smoothing production (Bradford &

Mayfield, 2001).

Alternatives to ERP systems include data warehousing technologies that

integrate data from source systems for query and analysis. These systems,

sometimes described as poor mans ERP, are limited by the quality of the

underlying source systems (Markus & Tanis, 2000).

RISKS ASSOCIATED WITH ERP IMPLEMENTATION

Scott (2003) identifies risks in ERP implementations in the areas of project

risks, information systems risks, organizational risks, and external risks.

Project risks stem from the customization of purchased packages and the

difficulty of interfacing with legacy systems. When firms believe their business

process are unique, they may customize ERP software instead of adopting best

practices imbedded in a standard implementation. Data conversion can also be

a problem when firms do not clean up their data before embarking on a project.



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Project leadership, limiting project scope, avoiding customization, and a phased

implementation (rollout) can minimize this risk (Scott, 2003).

Information systems risks arise from system performance problems. ERP

systems may be poorly configured or the hardware may need upgrading.

Another risk arises when the use of multiple vendors creates the need for

multiple interfaces. Multiple vendors contributed to the problems in the Hershey

Food Corporation implementation. Information systems risks can be minimized

by avoiding customization, use of data warehousing for reports and queries and

avoiding multivendor implementations (Scott, 2003).

Organizational risks of a bad ERP implementation can impact the firms

operating profits. Customer deliveries can be delayed putting customer

relationships at risk. Impacts can be with customers, financial performance, or

internal business objectives. Organizational risks can be minimized with training

and strong leadership, which assures that sufficient resources are allocated to

the project and inspires employees who may resist the implementation (Scott,

2003).

External risks center on litigation associated with the implementation.

Firms with implementation problems may sue consultants and/or ERP vendors.

Overbilling by consultants and use of incompetent trainees have been sources of

litigation (Scott, 2003). Gore-Tex claims its consultant promised expert staff and

delivered incompetent trainees. Managing consultants by specifying goals and

individual competence of consultants can minimized this risk (MacDonald, 1999).



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CRITICAL SUCCESS FACTORS.

Bullen and Rockart (1981) define critical success factors (CSFs) as the

few key areas of activity in which favorable results are absolutely necessary for a

particular manager to reach his goals. They point out that an incredible number

of things can divert a managers attention. A key to a managers success is to

focus their scarcest resource of time on those things that make a difference

between success and failure (Bullen & Rockart, 1981). Banfield refers to critical

success factors as those activities that make the difference between success

and failure - or at least the difference between incremental results and

breakthrough results (Banfield, 1999).

Drucker defines two requirements of controls. Controls must follow a

principle of economy. The fewer controls needed, the more effective they will

be. A second requirement is that controls must be meaningful. One has to

control by controlling a few developments which can have significant impact on

performance and results (Drucker, 1973). Both of Druckers requirements are

consistent with the principle of critical success factors.

Bullen and Rockart identify five prime sources of critical success factors:

1. The industrysome CSFs can be unique to the firms industry

2. Competitive strategy and industry positiona low-cost strategy will

call for different CSFs than a differentiation strategy

3. Environmental factorseconomy, political climate, population

trends, generally things over which a firm has no control



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4. Temporal factors - areas can be critical over a short period of time

5. Managerial position - managers in different functional areas may

have different CSRs, i.e., Sales vs. Finance

Bullen and Rockart demonstrated that CSFs are hierarchical in nature.

CSFs can be identified at the industry level, the corporate level, the sub-

organizational level and the individual level.

CRITICAL SUCCESS FACTORS FOUND PREVIOUSLY

Sneller (1986) examined the critical success factors in the implementation

of materials requirements planning systems (MRP). He applied classical

management theory relating to the functions of a managerplanning, organizing,

staffing, leading and controllingusing the Operational Management approach

described by Koontz, ODonnell, and Weihrich (1980). Snellers study was

conducted at the sub-organizational level, which was appropriate for MRP

systems as these systems impact primarily the manufacturing, and production

and inventory control functions of the firm. Because of the expanded

functionality of ERP systems compared to MRP systems, this dissertation

requires the examination of CSFs at the organizational level of analysis.

Sneller based his work on MRP installations on the results of

questionnaires sent to 50 personal acquaintances or referrals to the author and

100 material managers listed in the 1985 edition of the American Electronics

Association Directory. He believed that material managers would have the

highest probability of having knowledge of successful and unsuccessful MRP



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implementations. Based on sixty-one responses to his survey from these

material managers for electronics companies, Sneller identified the following

critical success factors in his study of MRP:Planning.

A detailed formal plan.

Training of management and users. Testing following training is also

significant.

Organizing

Full time project manager.The higher the reporting level of project

manager the higher the probability of success.Implementation group must

be allowed discrete amount of time.Staffing

Use of a consultant is helpful but will not guarantee success if other

factors are ignored.

Leading

Senior management must show more than token support.

Controlling

Control must originate with top management and steering committee must

meet at least monthly (Sneller, 1986).

Sneller examined but failed to find a relationship between the following

management practices and project success:

The amount of user participation in planning was not related to improved

performance and user satisfaction in the implemented system.



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The organizational reporting level of the project manager was not related to

improved performance and user satisfaction in the implemented system.

High levels of MRP systems experience and / or high levels of previous

project management experience, combined with strong motivation were not

significantly related to improved performance and user satisfaction in the

implemented system.

The use of a consultant during system implementation was not related to

improved performance and user satisfaction in the implemented system.

The use of a formal tracking system by the steering committee was not

related to improved performance and user satisfaction in the implemented

system.

Other lists of critical success factors abound in both popular and

scholarly articles, but these lists are generally based on experience or casual

observation, not controlled research.

McDonnell (2000) offered the ten critical success factors for ERP

upgrades summarized below. Although these CSFs relate to upgrading ERP

systems to a newer version I believe they may be equally applicable to new

implementations.

Spell out the strategic, tangible business and operational benefits

and find ways to measure success in achieving them. Assign

accountability and authority for those goals.



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Make sure all top management is united behind the business goals

driving you upgrade.

Because the biggest challenge is change management, retrain staff

not only with new technical skills but also with skills that often result from

upgrades and new job descriptions.

Make good decisions faster that balance schedule and cost vs.

benefits and risk. This is especially important because such projects

cross functional lines.

Implement creative incentives for your project team to reward their

hard work and increased value.

Be rigorous about project management and the implications of your

partnerships with consultants.

Look at the big picture, establishing a global architecture before

deploying locally. Too many projects begin with a small pilot or in phases

and then need to be redone when taken to other business units or

countries

Do process re-engineering before and during the project. Its a

mistake to think you can do this later or focus on installing the software

first, which also includes many decisions on process.

Pay attention to demanding training and support needs. Dont try to

save money by cutting training costs.



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Your organization needs to understand why the project is worth the

pain of change. Your project team needs full-time members, minus the

distractions of their real jobs. Your scope needs to be tightly focused to

resist the temptation of widening the scope and reworking the project plan

(McDonnell, 2000).

Another view of ERP success is provided by Laughlin (1999), who

identifies six components of a winning game plan for implementing ERP.

The six components are:

A motivating business justification,

Internal business support,

A strong internal owner,

An empowered and influential internal team,

Management driven change, and

A proven external partner (Laughlin, 1999).

Nah (2001) reviewed ten articles written by academics and

practitioners between 1998 and 2000 discussing What are the key critical

factors for ERP implementation success? These articles discussed eleven

critical success factors listed in Table I-2 together with the number of articles

discussing each of the factors. Nah did not distinguish whether empirical

research, case studies or other methods determined the factors mentioned.



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TABLE I-2

Nahs Critical Success Factors

Critical Factor No of articlesmentioning

ERP teamwork and composition

ERP project should be the teams top priority

The teams workload should be manageable

Incentives for successful implementation

8

Change management program and culture

A culture of shared values is conducive to success

7

Top management support

Align with strategic business goals

Tie management bonuses to project success

Top management priority

6

Business plan and vision

Tie project to specific business model

6

BPR and minimum customization

Willingness to change business to fit software

Software should not be modified

6

Effective communications

Management of communications, education and

expectations critical

5

Project management

Individual or group should be given respons ibility forsuccess

Plan with well-defined tasks and accurate estimation ofeffort

5

Software development, testing and trouble shooting

Appropriate choice of system functionality and links to

legacy systems

Work with vendors and consultants to resolve softwareproblems

5

Monitoring and evaluation of performance

Measurement against completion dates

Monitoring through milestones and targets

Management needs information on effect of project on

business processes

5

Project champion Oversee entire life cycle of project

High level executive sponsor

Business leader should be in charge

4

Appropriate business and IT legacy systems

Stable and successful business setting is essential

2



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Brown and Vessey (2003) identify five success factors based on case

studies of a dozen ERP implementations. The five factors are:

Top management is engaged, not just involved

Project leaders are veterans and team members are decision makers

Third parties fill gaps in expertise and transfer their knowledge

Change management goes hand-in-hand with project management

A satisficing mindset prevails.

Several other authors have investigated ERP systems and the factors

critical for successful implementation. A study based on four cases identified the

following CSFs: support of senior management, redesign of business process to

fit what the software will support, investment in user training, and use of

business analysts with knowledge of both business and technology (Sumner,

1999). One study identified factors such as commitment from top management,

selection and management of consultants and employees and training on the

new system (Bingi, Sharma, & Godla, 1999). Another study identified success

factors in software projects (Reel, 1999). An additional study developed a

framework grouping success factors into strategic and tactical factors based on

eight cases and a review of the literature (Holland & Light, 1999).

DEFINITION OF SUCCESS

Snellers study relied on two dimensions, improved performance and

user satisfaction, to define a successful MRP implementation. Snellers



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questionnaire used ten questions to operationalize these two success

dimensions.

Improved Organizational Performance.

The first dimension measures improved business performance

following an MRP implementation. White, Anderson, Schroeder and Tupy (1981)

showed that successful implementations of MRP resulted in the following

changes: increased inventory turnover, increased on-time deliveries, decreased

lead times, decreased material shortages and decreased material expediters.

User Satisfaction.

The second dimension tested by Sneller is user satisfaction. Researchers

have found functionality, equipment performance, interaction features, and office

environments provide user satisfaction in information systems. Functionality was

found to be the best predictor of user satisfaction (Bikson & Gutek, 1983; Gutek,

Bikson, & Mankin, 1984).

In addition to the above criteria, Sneller used a general question on the

return on investment of the project. The perception by the questionnaire

respondents of a positive rate of return on investment was necessary to define a

project as successful.

For purposes of this study, a six dimensional definition of success will be

used. The six dimensions measured are:

Systems quality,

Information quality,



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User satisfaction,

Individual impact and

Organizational impact.

The selection of these six dimensions is discussed more fully in Chapter II.

IMPORTANCE OF TOPIC

Despite the large sums of money spent annually by business on

implementation of ERP systems the reports of implementation failures abound.

Hershey Foods embarked on an ERP investment in mid-1996 to solve its Y2K

problem and improve its ability to perform just-in-time store deliveries to its

customers (Severance & Passino, 2002). After spending $112 million on an ERP

project, Hershey Foods Corporation was unable to fill Halloween candy orders in

October 1999, resulting in a 19% drop in third quarter profits (Stedman, 1999).

As a result of Hersheys problems its stock price fell by a third and the firm lost

market share to Mars and Nestle (Severance & Passino, 2002). Hershey

estimates it suffered a 3% permanent decrease in market share from this

experience (Sutton, 2003).

A study by the PA Consulting Group found that 92% of companies are

dissatisfied with results achieved to date from their ERP implementation and only

8% achieved a positive improvement in their performance ("ERP Implementation

Disappoints Companies," 2000).

Davenport (1998) identifies several unsuccessful implementation efforts:



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Fox-Meyer Drug claims that an ERP system led to its bankruptcy.

Mobil Europe spent hundreds of millions on ERP, but abandoned

the project when a merger partner objected.

Dell found that its ERP system did not support its new

decentralized management style.

Applied Materials gave up on its ERP implementation when it

became overwhelmed with the organizational changes it required.

Markus and Tanis identify five areas in which ERP research is important to

IS research. The areas are:

1. Financial cost and risk. ERP implementation is expensive and risky.

Several visible failures have occurred and non-academic literature is questioning

the benefits derived from such systems. Brown and Vessey (2003) observe

although failures to deliver projects on time and within budget were an old IT

story, enterprise systems held even higher risks-they could be a bet-our-

company type of failure.

2. Technical issues. Technical challenges of ERP systems include

software selection methods, software configuration techniques, systems

integration strategies, and data quality.

3. Managerial issues. ERP implementation projects involve many

different organizations (suppliers, customers, etc.) and cut across organizational

structures. ERP implementation affects how organizations structure and manage



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the information and presents challenges in personnel recruiting, training and

retention.

4. IT adoption, use and impact. ERP systems are widely adopted and

continue to proliferate. Questions remain regarding how effectively and

extensively the systems are used in organizations. Effects of these systems are

experienced at several levels of analysis including individual, process,

organization, and industry.

5. Integration. Integration issues include the relationship of ERP to

organizational restructuring around IT capabilities, structural changes in IT

resulting from the outsourcing of systems development and programming and the

increasing reliance on third parties of products and services, and the

effectiveness of ERP system compared with other alternatives, such as data

warehousing, middleware and looser integration strategies.

CHANGES SINCE SNELLERS STUDY

The 1986 study of MRP implementation by Sneller made an important

contribution to the literature, but factors changed with the development of ERP

systems.

1. The level of analysis of CSFs changed from the sub-organization

level to the organization level.

2. The very nature of ERP encompasses the entire organization

where MRP primarily affected the material management and production and

inventory management sub-organizations.



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Sneller concluded his work on MRP with the observation that, There

appears to be a lack of good old fashioned discipline in the implementation

approaches used for projects that were unsuccessful. American management

has become very undisciplined as society itself has become undisciplined.

(Sneller, 1986) As American industry has improved its global competitiveness

during the nineties, have the values of classical management been a factor?

The IT community of professionals now has over 15 years experience in

implementing complex systems since Sneller studied MRP. Why are we not

more successful in obtaining results with ERP systems? Has organizational

learning been offset by the increasing complexity of systems implementations?

Future Enterprise Systems.

Brown and Vessey (2003) view ERP as the first wave of a series of

enterprise systems projects to be followed by customer relationship management

(CRM) and supply chain management (SCM). They believe that the lessons

learned in ERP implementations will enable management to better manage risks

of the next wave of enterprise systems. The second wave of ERP is discussed

more fully in the next chapter.



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CHAPTER II

REVIEW OF LITERATURE

OVERVIEW

In this chapter the literature relating to the following topics is examined.

The evolution of ERP

The applicability of the functions of management theory to the implementation

of complex systems

Success measurement

While practitioner literature on ERP abounds, academic literature is

sparse. Practitioner literature, while rich in observations and anecdotes,

generally lacks the rigor of empirical research. Where specific ERP literature is

not available, general management information literature is examined.

MRP, MRP II AND ERPAN EVOLUTION

ERP systems evolved from material requirement systems first developed

in the 1960s.

28



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Figure 11-1 Evolution of ERP Systems

Evolution of ERP S^stems

UUOsI RP1I 1

lJOs

1y()s MRP II |

] %0 i hjvuUor^ongo^gdMBgsJ

Adapted from (Rashid, Hossain, & Patrick, 2002).

Material Requirements Planning (MRP)

Computer applications for business were first developed in the mid 1950s.

These first systems were stand-alone applications. The first applications

included payroll processing systems, general ledger systems, accounts payable

systems, and inventory management systems. Each system involved its own

logic, data and users. With these stand-alone systems it was impossible to

coordinate information systems planning across business functions (Davenport,

2000). Business systems were described as islands of automation (McKenny &

McFarlan, 1982). When new systems had something in common with existing



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systems they were often loosely coupled, usually manually, rather than tightly

integrated (Markus & Tanis, 2000).

Data was often described differently in different functional systems.

Attempts to combine data across various systems were difficult and error-prone.

Material requirement planning systems were first developed in the 1960s

to help manufacturers produce the right part at the right time with a minimum

investment in inventory. Manufacturers had used inventory as a buffer to keep

from running out of product that is needed to meet customer demand. The

combined result of buffers at all levels of production cause inventory investment

to increase dramatically. Not only did this increase in inventory put demands of

the firms cash flow to support the investment, but also made the firms more

vulnerable to write-offs resulting from inventory obsolescence.

APICS, the professional society that has promoted the adoption of MRP

and ERP systems and provided user education, describes MRP as follows.

A set of techniques that uses bill of material data, inventory data, and the

master production schedule to calculate requirements for materials. It makes

recommendations to release replenishment orders for material. Further, because

it is time-phased, it makes recommendations to reschedule open orders when

due dates and needed dates are not in phase. Time-phased MRP begins with

the items listed on the MPS and determines (1) the quantity of all components

and materials required to fabricate those items and (2) the date that the

components and material are required. Time-phased MRP is accomplished by



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exploding the bill of material, adjusting for inventory quantities on hand or on

order, and offsetting the net requirements by the appropriate lead times (Cox &

Blackstone, 1998).

MRP works backward in time from the planned quantities and due dates

for each end product as specified in the master production schedule. Using the

bills of material to determine the sub-components for each final product, MRP

systems determine planned production order release dates and quantities and

planned material requisition requirements, taking into account existing inventory

on hand and on order, and production orders in process (Sneller, 1986).

The process begins with the production plan expressed in units by product

lines. This plan is based on the overall level of manufacturing output the firm

plans to produce. Once the production plan is approved it is converted into a

master production schedule, which is a more detailed plan.

The master production schedule is based on specific end products and

takes into account the forecast, the production plan, product backlog, inventory

on-hand, material availability, plant capacity, and management policies and

goals.

The master production schedule then becomes input to the capacity

planning module. Both planned orders and orders already released for

production are used in these calculations. This module converts production in

units to production time for each work center required to build the products on the

master production schedule. The output of this process is work center job



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scheduling reports and purchasing requisitions for materials based on the time

phased production schedule.

Without MRP as a tool to time phase material requirements, materials may

either arrive earlier than needed for production resulting in higher than necessary

inventory levels or later than needed resulting in the inability to deliver the end

product as promised to the customer. A properly operating MRP system

minimizes inventory investment, while improving customer service levels.

A major limitation of MRP systems is that unlimited capacity was

assumed. The planned order release of work orders to the manufacturing floor

did not take into account the capacity limitation of the work center and their

machinery and labor availability.

Manufacturing Resource Planning (MRP II)

MRP II overcame some of the drawbacks of MRP. It provided finite

capacity planning scheduling and shop floor control capability (manufacturing

execution systems). MRP II includes more business functionality than MRP,

dealing with sales, production, inventory, schedules, and cash flows.

(Palaniswamy & Frank, 2000)

APICS describes manufacturing resource planning (MRP II) as follows. A

method for effective planning of all resources of a manufacturing company.

Ideally, it addresses operational planning in units, financial planning in dollars,

and has a simulation capability to answer what-if questions. It is made up of a

variety of functions, each linked together: business planning, sales and



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operations planning, production planning, master production scheduling, material

requirements planning, capacity requirements planning, and the execution

support systems for capacity and material. Output from these systems is

integrated with financial reports such as the business plan, purchase

commitment report, shipping budget, and inventory projections in dollars.

Manufacturing resource planning is a direct outgrowth and extension of closed-

loop MRP (Cox & Blackstone, 1998).

Enterprise Resource Planning (ERP) Systems

Changes in the manufacturing environment have made manufacturing

planning and control systems, such as MRP II, less relevant. A move toward

more customization is moving manufacturing from a make to stock environment

to a make to order environment. The basis for competition is shifting from quality

and cost to delivery, lead times, flexibility, greater integration with the customers

and suppliers, and higher levels of product differentiation (Palaniswamy & Frank,

2000). The emergence of standard hardware and software platforms coupled

with standards for business data capture and exchange in the form of enterprise

resource planning (ERP) systems have made powerful and robust business

processes affordable to companies of all sizes (Severance & Passino, 2002).

APICS describes enterprise resource planning systems as follows:

1) An accounting-oriented information system for identifying and planning

the enterprisewide information needed to take, make, ship, and account for

custom er orders. An ER P system differs from the typical M RP II system in



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technical requirements such as graphical user interface, relational database, use

of fourth-generation language, and computer-assisted software engineering tools

in development, client/server architecture, and open-systems portability. 2) More

generally, a method for effective planning and control of all resources needed to

take, make, ship, and account for customer orders in a manufacturing,

distribution, or service company (Cox & Blackstone, 1998).

Donovan describes ERP systems as quantum improvements over the

old, rigid and often illogical MRPII systems. With todays configurable and more

flexible ERP systems theres been a dramatic improvement in both the speed

and ability to conform to logical, customer-oriented business processes. MRP

processes were hard coded with rigid, predefined business processes

embedded in the software that were difficult to adapt to the real business needs.

In contrast many ERP products come pre-packaged with multiple best practice

options that management can choose from. ERP capabilities provide the

visibility and time links needed to manage the entire supply chain (ERP Systems

Promise a Quantum Leap Over MRPII Systems, 1998).

ERP software can result in a significant improvement over MRP and

MRPII in the entire order-to-delivery process. Customers can be served at a

lower cost and more predictability resulting in a competitive advantage to the

firm. Predictability means that the right inventory will be available, at the right

time, to fill customer orders (ERP Systems Promise a Quantum Leap Over MRPII

Systems, 1998). Todays more demanding customers insist on predictability.



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Technical Factors.

Davenport (2000) identifies several technical factors that distinguish ERP

systems from predecessor systems. These technical factors include modular

construction, client/server architecture, configuration, common central database,

and variable interfaces.

Modular construction. ERP systems are a collection of application

modules representing various business processes. SAP, a leading ERP systems

vendor, includes the following modules in its SAP R/3 software:

Table 11-1Typical SAP Functions

Financial Accounting Materials ManagementTreasury Plant MaintenanceControlling (financial control) Quality Management

Enterprise Controlling (managementreporting

Project Systems (project management)

Investment Management Sales and DistributionProduction Planning Fluman Resource Management

Advanced Planner and Optimizer

Companies can install all modules or only the modules they select. Client

may also substitute modules written by other software firms which fit their

functional needs better than the comparable modules of their main vendor.

Client/server Architecture. In this architecture, a server does some

processing and a desktop personal computer (the client) does the rest. Large

and complex ERP systems may require one server for application programs and

another server for the database.



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Configuration. ERP systems are based on a standard set of business

processes. Companies installing systems can configure the ERP system to meet

their own business needs. Where the configuration options do not meet the

needs of the company, the company must reengineer its processes to match the

configurations available in the ERP systems.

Common Central Database. A central database, shared by all modules,

is a feature of ERP systems. While this feature is not new, in ERP systems it has

reached the highest level of successful execution.

Variable Interfaces. As global systems, ERP systems include interfaces

that match the different countries in which firms operate. Typical ERP systems

support currencies and local human resource requirements in most industrialized

nations.

ERP II

Recently, the Gartner Group coined the term ERP II to describe a shift in

ERP from an enterprise information base to moving information across the

supply chain. ERP II systems, then, are not just the backbone of the enterprise.

They are also the information link for an enterprise in the supply chain ("Taking

the Pulse of ERP," 2001).

The challenge of ERP II is first to accurately manage information about

enterprise transactions and then to open up the system to trading partners. A

PeopleSoft executive states, Going forward, ERP is all about sharing information



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and collaboration. ERP is no longer about your business, its about your supply

chain, states a J.D. Edwards executive ("Taking the Pulse of ERP," 2001).

Brian Zrimsek, research director of the Gartner Group, identifies six key

areas of difference between ERP and ERP II ("Taking the Pulse of ERP," 2001).

Role. ERP attempts to optimize the enterprise. ERP II is concerned with

supply chain optimization by collaboration with trading partners.

Domain. ERP focuses on manufacturing and distribution. ERP II will

cross all sectors.

Function. Current ERP systems cross all industry segments and sectors.

ERP II vendors will specialize in deep functionality for specific industries.

Process. Business processes are focused within the four walls of the

organization. ERP II will go beyond the four walls to business trading partners.

Architecture. ERP systems are monolithic and closed. ERP II will be

Web-based, open to integrate and interoperate with other systems.

Data. ERP information is generated and consumed within the enterprise.

ERP II information is available across the supply chain.

Gartner does not expect to see ERP II systems fully deployed before

2005.

OPERATIONAL PLANNING MODEL

Koontz (1980) summarizes classical management theory in his systems

approach to management. Inputs to the Koontz model include human, capital,

management and technology. A managerial transformation process converts



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these inputs into outputs, such as products, services, profits, satisfaction, and

goal integration. The managerial transformation process consists of planning,

organizing, staffing, leading and controlling. The process is supported by a

communications system, which links the various elements to each other and to

outside stakeholders and the environment (Koontz, O'Donnel, & Weihrich, 1980).

Planning

Koontz describes planning as a function that precedes all other

management functions. Planning identifies the organizations objectives and

describes how the organization will attain these objectives. The other functions,

organizing, staffing, leading and controlling, support the planning function

(Koontz et al., 1980).

The implementation of an ERP system is a massive task involving to some

degree a large part of an organizations employees. For a group effort such as

this to be successful people must know what tasks they are expected to

accomplish and when the tasks need to be completed. Planning is deciding in

advance what to do, how to do it, when to do it and who is to do it. Planning

bridges the gap from where we are to where we want to go (Koontz et al., 1980).

Integration o f Information Systems Planning and Business Planning

Teo and King (1997) investigate the integration between business

planning and information systems planning. Informa tion system s planning is the

process of establishing objectives for organizational computing and identifying

potential applications that the organizations should implement (Teo & King,



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1997). The linkage of IS plans with organizational objectives has been among

the top problems reported by information systems (IS) managers and business

executives (Reich & Benbasat, 1996). Another research paper cited an A.T.

Kearney study that demonstrated that firms that integrate business plans with

information systems plans outperform those that do not (Das, Zahra, &

Warkentin, 1991). Severance and Passino (2002) state that most executives do

not understand the connection between modern business and technology and

leave technology compartmentalized within the l/T department with disastrous

effects.

King (1978) recognized the importance of business planning (BP) and

information systems planning (ISP) integration, seeing the integration as one

directional only, flowing from business planning to information systems planning

(King, 1978). King and Zmud (1981) later expanded the concept into a two-way

integration (King & Zmud, 1981). Synnott (1987) develop five levels of

integration:

1. No planning: No formal BP or ISP.

2. Stand-alone planning: Presence of either business plan or IS plan but

not both.

3. Reactive planning: IS function reacts to business plans and has no

input in the BP process.

4. Linked planning: BP is interfaced with ISP. Systems resources are

matched against business needs.



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5. Integrated planning: BP is indistinguishable from ISP. They occur

simultaneously and interactively (Teo & King, 1997).

With the high level of functional integration required in the adoption of

ERP systems it is reasonable to conclude that the higher the level of integration

of BP and ISP, the more likely the project is to succeed.

Organizing

Koontz et al. (1980) defines organizing as the establishment of an

intentional structure of roles through determination of the activities required to

achieve goals of an enterprise and each part of it, the grouping of these activities,

the assignment of such groups of activities to a manager, the delegation of

authority to carry them out, and provision for coordination of authority and

informational relationships horizontally and vertically in the organization

structure. Daft (2000) provides a simpler definition of organizing as the

deployment of organizational resources to achieve strategic goals. Organizing

encompasses such issues as organizational structure, delegation of authority,

and staff versus line functions.

The function of organizing is based in the foundations of management

literature. Organizations arise out of the need for cooperation among people.

Uncertainty in the environment reduces the level of cooperation (Barnard, 1938 &

1968). The adoption of an ERP system would cause uncertainty and thus reduce

cooperation in the organization.



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Project Management

Common organizational structures are based on functional areas,

geographic areas, divisions, strategic business units or matrix organizations.

Where tasks impact several areas of an organization the use of a project

manager is frequently used to provide lateral coordination.

Full time Project Leader

The Sneller study examined the relationship between a full-time project

leader and project success. At the time of this study, the systems literature was

divided on whether a full time project leader with MRP systems experience was

required. One view is that a user must head up the project team and that it must

be a full time job (Wight, 1974). Another perspective is that, The last thing (a

Project Manager) really needs is some systems knowledge or technical

knowledge. That is probably the least important of the skills needed in a Project

Manager (Flosi, 1980).

Level o f Project Leader

The reporting level and rank of the project manager are important factors

in project success. The project manager needs the authority to make difficult

decisions. Without decision-making authority, groups with vested interests in the

affected process will either proceed very slowly or resist the project entirely. The

project manager, with higher organizational position than personnel in the

affected groups, may be more effective. Cisco Systems overcame organizational

inertia only when its ERP project was led by the CIO and the vice president of

manufacturing, who reported directly to the board of directors (McAfee, 2003).



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Staffing

Staffing is the management function that fills the roles within an

organization with competent people who can operate the firm now and in the

future. Staffing involves effective recruitment, selection, placement, appraisal,

and development of people to occupy the role in the organizational structures

(Koontz et al., 1980).

Skills o f Project Manager

Current literature concerning the role of

2004. Enterprise Resource Planning Success a Management Theory Approach to Critical Success Factors

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