The Role of Enterprise Resource Planning in Globalization - Case Study Example

?In “It's a Flat World, After All” Friedman (2005) argues that the convergence of information and communication technologies (ICTs) has created an entirely new degree of freedom to the way we (shall) conduct work especially that of an intellectual nature. In this regard, the author feels that the United States has yet to realize the implications of this ICT-enabled level playing field and its threat to the very heart of America’s superpower status; its rich intellectual resources and innovative culture. Friedman (2005) fear is that the advancement of ICTs could signal the end of American wealth and dominance unless the country develops strategies to sustain its relative competitive advantages over other nations. The article specifically outlines ten events and forces that have led to this. Out of these ten events and forces, all bar one – fall of the Berlin Wall – have been enhanced by ICTs. This paper uses the principles of business process reengineering (BPR), enterprise resource planning (ERP), and knowledge management to critique the ideas Friedman’s raised in this article. Business process engineering The world is increasingly being driven by customers, competition and change. These three challenges have necessitated companies to be constantly on the lookout for new solutions to their business problems, hence the emergence of business process reengineering (BPR). In his book, “Business @ the Speed of Thought”, Bill Gates states that the 1980s was about quality, the 1990s about reengineering and the 2000s about speed. It is this speed of innovation independent of location that Friedman speaks of with regards to the emerging economic powers of China, India, and Russia that America must be wary of. BPR is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed (Muthu et al., 1999). The purpose of which is to redesign the strategic and value added processes that transcend organizational boundaries. IT is a key enabler of BPR, an attribute that is manifest in the roles that it plays: before the process is designed, while the process design is underway, and after the design is complete (Attaran, 2004). Friedman points out that misnomer that many Americans have been led to or lead themselves to believe that China, India, et al are racing them to the bottom whereas in actual sense they are racing the US to the top. These emerging economic powers have rich educational heritages an ambitious youth and access to work experience from leading corporations that have outsourced, offshored to their countries and access to a wide range of information over the Internet. According to Friedman (2005) American multinationals previously outsourced and offshored to minimize cost but now it is because they are unable to find the talent they need locally so they source it abroad. The seven principles of BPR according to Hammer 1990 are: outcome orientation, integration, local responsibility, pooling or resources, fasten processes, empowering and control, and reducing data duplication. Outcome orientation implies that the organisation needs to organize around outcomes and not tasks. The goal is not just to focus on a few things at a time, but to focus on the right things, to target those activities that will make the biggest impact in terms of customer perceived value. Outsourcing – one of the forces that has led to flattening of the world – is focused on moving those activities that are not core to the company to be done by companies that can perform them better and cheaper. Outsourcing improves efficiency and reduces cost. Another ICT-driven force that Friedman cites as a world flattener is offshoring. Offshoring is the migration of jobs, but not the people who perform them, from rich countries to poor ones. It is also referred to as offshore outsourcing and works much in the same way as outsourcing. It is almost obvious that organizations that hope to offshore have to conduct BPR since the following elements of BPR would be critical for the success of offshoring: (1) moving the decision point from the client to where the work is performed and build control into the process; (2) enhance local responsibility to act upon information; and (3) treat geographically dispersed resources as though they were centralised. ICT is vital for the success of all these elements. The US leads the world in offshoring white collar-jobs in diverse fields from software engineering to call centre to conducting research and development. Farrell and Rosenfeld (2005) argued that America has nothing to fear from offshoring because it is limited in scale, global competition sharpen companies’ skills and savings derived from offshoring allow US companies to invest in better technologies that lead to more jobs being created, both at home as well as abroad. This argument, however, does not sound too convincing because it is based on the premise that countries where these jobs are offshored to are content with the status quo. This may not be the case. Outsourcing and offshoring have the potential to atrophy a company’s competitive advantage as it focuses less on development of competencies that it considers noncore now but that could be game changers in future. According to Prahalad and Hamel (1990) outsourcing can provide a shortcut to a more competitive product but it typically contributes little to build the people embodied skills that are needed to sustain product leadership especially for organizations that intend to remain competitive in the future. Nobel Laureate Paul Samuelson supported this argument when he stated that in certain circumstances practices that promote free trade such as offshoring could erode the comparative advantages of rich countries and leave them worse off (Farrell & Rosenfeld, 2005). These are the fears that Friedman (2005) aims to enlighten the American population about. Enterprise resource planning (ERP) The core driver behind ERP is the need to simplify business processes. This is accomplished mainly through: integration of different systems to enable interoperability, increasing customer-orientation, enhancing data sharing across the different functions and sections within an organization, and transformation of processes into IT-controlled procedures. It is not a surprise that in Friedman’s flat world, where country borders are increasingly losing relevance there are still challenges. The number one challenge, especially for manufacturing companies, is the increased complexity of the supply chain. The ERP arose because of the increased business need for technologically sound architecture that supports both global visibility and transactional interoperability. According to research conducted by Aberdeen Group (2007) the key business challenges that companies operating at the global level face, in a decreasing order of importance are as follows: (1) increased complexity of the supply chain; (2) need to adapt to business rules of foreign countries; (3) lead times that inhibit speed to respond to market demands, (4) human capital management in unfamiliar cultures; (5) lack of visibility into supply chain, (6) global supply chain costs, and (7) difficulty in making trade off decisions between supply chain velocity and landed costs. There is no single best response to these added complexities of globalisation, however the ERP can be used to tackle all the above challenges bar human capital management in unfamiliar cultures. Internal operations must be integrated before interoperability can be achieved on a global scale. Companies with global operations need to implement business process reengineering (BPR) to redesign their internal processes in order to effectively tackle the challenges that have arisen from going global. The more seamless the integration of the intra and inter-company activities, the easier it is to manage governance, risk and compliance. Core ERP must therefore be able to deal with issues such as currency exchange, multi-site and multi-company transfer of inventory, consolidation, localization, and translation (Aberdeen Group, 2007). So how then does this tie into Friedman’s arguments? Friedman (2005) arguments are centred on the fact that ICTs have flattened the world and made it easy for other countries to not only make products and offer services cheaper than the US but also given them access to the skills and knowledge that shall empower them with core competencies necessary to create competitive advantages. These countries will then use their newly developed core competencies to beat the US in innovation, growth and development. When one thinks of an ERP one pictures standard, global software packages that embody best practises offered across different countries and sectors. With such software it is easy for new players to step onto the playing field legacy free. ERPs lower barriers to entry for new players by offering support to the entire organisational functions from marketing to finance to human resource to suppliers to external employees This means that America and Western Europe is no longer guaranteed to continue being the industrial, economic and even political leaders in the world. Knowledge management According to Zack (1999) organizations that seek to remain competitive have to create, locate, capture, and share their company’s expertise and knowledge in an effective and efficient manner. Here knowledge refers to that information that has been organized and analysed to make it understandable and applicable to problem solving, decision making, learning, and teaching within the organisation. Even though knowledge management has become widely accepted, few companies are able to develop and leverage their key organisational knowledge to better their profitability and growth. Information technologies are critical in knowledge management for the following four functions: (1) to capture knowledge; (2) to define, categorize, index and store knowledge units; (3) to search for relevant content; (4) and to present the content in a meaningful way over multiple contexts of use (Zack, 1999). Knowledge management applications can be broadly classified into either integrative application or interactive applications. Integrative applications are those where the producers and consumers of the information do not directly interact with each other rather they interact with the knowledge repository instead. Examples of these applications are those found within say company X such that only employees of Company X comprehend the knowledge within. On the other hand, interactive applications are those that support direct interaction among people holding tacit knowledge for example online discussion forums. The ten events and forces that Friedman (2005) cites in his article as enablers of the flat world led many organisations to disperse their operations across the globe. This may have led to new markets and / or reduced cost of production but at the expense of knowledge sharing mechanisms. The larger and more far-flung a company becomes, the less effective its natural knowledge sharing mechanisms become (Lelic, 2002). This phenomenon is known as diseconomies of scale. Moreover, with going global companies are faced with increased cultural challenges, language barriers, and time barriers and so on. These multinational companies face the dilemma of whether to impose a single centralist operational structure or to foster a devolved decision-making capacity. The former may enhance efficiency but at the expense of atrophying individual cultures whereas the latter may less efficient now but prove more productive in the long run. Knowledge management, if well implemented, has the potential to aid multinationals resolve dilemmas such as this. If one took the United States to be an organisation, based on Friedman’s article, one would conclude that the US is not doing a good job with regards to knowledge management. The US has yet to realize that the incentive that previously led American companies to outsource and offshore to the East has changed. Whereas cost reduction was the initial driver, today Friedman (2005) argues that it is due to availability of a better-skilled and more productive labour force abroad. According to Friedman (2005) there are three gaps plaguing the American society: ambition gap, numbers gap and education gap. Whereas the country did not have to worry in the past because of an influx of talented immigrants, information technology has eliminated the need for people to emigrate. The talented individuals are now able to accomplish their dreams from regardless of their location. Conclusion From a critical analysis of the article, Friedman raises strong and relevant arguments that indicate how information technology – America’s forte – bears the greatest threat to America’s future economic and superpower status. Nevertheless, Friedman forgets that the flattening of the world through ICTs has also generated its own negative effects. For starters, it has led to a belief in Westernization as being superior to other cultures. ICTs have largely promoted only western ideals whereas other cultures and practices could prove to be better. A good example is the emergence and growth of Japanese management practices in the 1980s such as Kaizen, Kanban, genba and so on. References Aberdeen Group (2007). The Role of ERP in Globalization. Attaran, M. (2004). Exploring the relationship between information technology and business process reengineering. Information & Management. 41. p.pp. 585 - 596. Farrell, D. & Rosenfeld, J. (2005). US Offshoring: Rethinking the Response. Friedman, T.L. (2005). It’s a Flat World, After All. [Online]. 3 April 2005. The New York Times. Available from: http://www.nytimes.com/2005/04/03/magazine/03DOMINANCE.html?_r=1. [Accessed: 24 November 2011]. Lelic, S. (2002). It’s a small world: The effects of globalisation on knowledge management. Inside Knowledge. [Online]. 5 (9). Available from: http://www.ikmagazine.com/xq/asp/sid.0/articleid.B2C08675-06BF-4955-91C2-75128B65B615/eTitle.Its_a_small_world_The_effects_of_globalisation_on_knowledge_management/qx/display.htm. [Accessed: 25 November 2011]. Muthu, S., Whitman, L. & Cheraghi, S.H. (1999). Business Process Reengineering: A Consolidated Methodology. In: The 4th Annual International Conference on Industrial Engineering Theory, Applications and Practice. 17 November 1999, San Antonio, Texas. Prahalad, C.K. & Hamel, G. (1990). The Core competence of the corporation. Harvard Business Review. (May-June). p.pp. 79 - 91. Zack, M.H. (1999). Managing Codified Knowledge. Sloan Management Review. 40 (4). p.pp. 45 - 58.  Read More