Implementation of a New Enterprise Resource Planning System by PowerIT - Case Study Example

 Change Management of People & Technology Introduction People need information to make informed decisions. This is the same way with most businesses today; these firms also need information quickly that is accurate and updated. Most firms have a hard time keeping up with all the information they need; some information are more useful than others. The growing complexity of the business environment makes it very crucial for businesses to have the right kind of information at the right time and right place. It is a competitive tool for a business organization to have that information and many of these companies are willing to pay for the right business information systems put in place. Before information can become useful to management and employees alike, it must be converted first from raw data into something more meaningful that can be acted upon. This is where enterprise resource planning (ERP) systems come into the picture. The system is very integrative in the sense that it connects all the dots within an organization for everybody. ERP integrates all the departments and functional areas so that the whole set of data generated will be made into coherent and meaningful whole information useful for making right decisions. However, ERP systems do not come cheap, these are also difficult to implement. ERP tries to combine and integrate all the threads in a business organization such as the production planning process, purchasing, manufacturing, sales distribution and customer service to also include back-room operations such as accounting and auditing (Edwards & Humphries 145). It is difficult to implement because many usual work processes will have to be changed and the people doing these functions normally resist such changes. Resistance to change is a very natural and expected human reaction because of the uncertainties. Technical changes like the adoption of new ERP system fail to take into account organizational climate (Margulies 86). Discussion PowerIT is an autonomous company with about 200 employees based in Northern England and part of the $4 billion Taiwanese PowerIT Group of Companies. As such, it is allowed much leeway in making local decisions to enhance its competitiveness in the UK and European markets. PowerIT-UK has two main business units namely PowerIT Production and PowerIT Services. The first unit designs and manufactures 30W to 2KW of power supplies and equipment for the conversion and conditioning of AC and DC inputs for applications in networking, communications, financial services and industrial markets. The second unit is geared towards providing full after-sales service support including full repair reporting and fault diagnosis, re-works and refurbishment capabilities (Edwards & Humphries 144). A third unit is PowerIT Learning which is a learning centre for its employees to acquire needed skills. Prior to the decision to implement a new ERP system, the company has been using its old materials resource planning system or MRPII to support is production processes. However that system has very limited applicability as it applies only to the production process and not with other areas of the company’s operations like what the new ERP system is supposed to do. The proposed new ERP goes beyond simple production processes and is designed to provide important information on other aspects like purchasing, marketing, sales distribution and the all-important customer service function. It is more inclusive and also more comprehensive. Eighteen months after initially implementing the new ERP system, management soon realized that this expensive system was not functioning very well and failed to deliver on its promises. However, there were a number of reasons why the system failed and management wants to find out the real causes and hopefully come out with viable recommendations and solutions to maximize their ERP system. An external team of experts was brought in to search and investigate the reasons and make a report to higher management. Background of the Case Study A business organization that decides to implement an ERP system has several options available to it. An obvious one is to develop the software itself using in-house resources that are available to it. However, there are drawbacks to this option such as long lead times with no assurance of success (depending on the skills of its own IT people) and probably the lack of an application domain knowledge base. Other options include asking an outside vendor to develop the needed software either on-site or off-site (custom-made software package). Last option which is resorted to today by most firms is buying an off-the-shelf software package, known as “third-party modified off-the-shelf solution.” The last approach was the one adopted by PowerIT in its choice of an ERP system. It is like buying a ready-made software package but this can be customized to suit local uses for a particular firm. An ERP system is actually composed of several modules (separate units) and can be bought separately, depending on which modules (features) are necessary. PowerIT had availed of third-party solutions due to time considerations and expertise of the vendors. An ERP system is like an independent mini-system that runs on a single process but contains within it several sub-processes (application domains). A buyer can then just choose which of these domains he wants to buy and activated, depending on his requirements. It is supposed to work out that way for the system to be fully maximized and the expense justified. However, the outside expert team coming from the local university found out several factors that had hindered the full implementation of the ERP system. It all begun on the wrong foot starting with the bidding process and then just proceeded downhill from there. The firm had adopted a tender offer process to select the best vendor based on such considerations as price, technical specifications and timetable for the roll-out implementation (ibid. 148). Along the way, the expert team found out a number of missteps that occurred although the ERP itself was essentially technically adequate and appropriate for the firm’s needs (ibid. 154). Figure 2: Third-party Modified off-the-shelf solution Choosing an ERP system is never an easy decision. This is also the case with PowerIT in which there were several existing vendors for its original software and were being taken over by the bigger ERP software vendor (ibid. 155). Several factors need to be considered before a final decision can be made and some of these are price and specialized functionality together with a good customer support. The case of PowerIT can be seen as integrating its present business information system (BIS) which is the MRPII to be expanded and migrated to the more all-encompassing ERP system. BI systems are actually considered now to be just a small part of the total ERP solutions when firms consider business information or analytics. In some companies, what they do is merely upgrade their ERP system using existing vendors’ BI systems. In the case of PowerIT, they went for what they thought is a better and more capable third-party vendor because this particular vendor’s software comes with a lot of built-in and integrated module solutions considered appropriate for their needs. In this regard, the vendor eventually chosen during the bidding process was rated in terms of its areas of relative strength such as software development expertise (high), application domain expertise (also high) and local company knowledge (low). The bidding process had been narrowed down to three short-listed possible vendors with the third vendor chosen after some deliberation by the business development manager. Rating the vendor’s expertise in software development as high is probably correct in this instance because the vendor has been in the business for quite some time already. This means it had acquired the necessary skills and experience in developing software for various uses and has perfected this art of software development. It means the vendor can develop a new software, if necessary, without bugs in it or develop it within a short time frame or quickly. When buying new software, it is paramount the business enterprise will not suffer due to some breakdowns or downtime when using the software, so vendor qualification is important. The main reason why PowerIT chose to acquire ERP from a third-party vendor in the first place was that it does not have the required capability in application domain knowledge. Creating application domains requires a special skill and is a very complicated programming process. In particular, it pertains to running a certain application within a computer process and it is critical an isolation process is perfect so that when running it will not affect the other on-going applications. Application domains use separate memory addresses and boundaries for this purpose. This isolation (separation) is necessary so that various applications will not affect one another when running simultaneously. The third-party vendor was rated high on this aspect as it had prior experience already selling similar ERP software to other clients. This means its software is already proven and well-tested in the market. In terms of local company knowledge, the vendor was rated low and this is expected. No new vendor can be expected to know everything about a company it is selling its software to and this is the case with all new vendors, except perhaps the existing original vendors with PowerIT. All the vendor needs to do to overcome this lack of local company knowledge is to send its support personnel to interview the company’s employees and observe its business processes to learn more about how the company works and its information requirements. The acquisition strategy of PowerIT is thereby called modified because it is buying off-the-shelf software that is modifiable or customizable according to the modules it will finally choose. A standard ERP software package can be adjusted to tailor-fit a specific firm’s unique needs. It is just a matter of choosing which modules or features (functions) to include and activate. Choosing the right modules is a complicated process if one selects from a variety of vendors because these vendors often use different terminologies for the same features. For example, different module combinations can be bought based on different requirements by the various departments. Project managers need to be certain at the outset which of the modules they will have use for and buy. The imperative is choosing the right combination of modules. Major Problems Encountered During Selection PowerIT had used a tendering process as illustrated in Figure 3 (ibid. 148). It was quite evident from the very start that there several “missed risks” (I would rather like to call these as “missed opportunities”) to rectify the defects in the acquisition strategy. When the selection was narrowed down to only three potential vendors, the two vendors were quite obviously not qualified (one did not respond at all and the second just give a generic view or presentation of its product). That leaves only one (the third vendor) which made only some cursory references to the PowerIT environment and how its product would fit in (ibid. 151). The business development manager should have declared the tender offer (bidding process) a total failure and not awarded the contract at all to this third vendor. When only one bidder is remaining, the entire tender offer is usually declared a failure. The business development manager was the sole person making the decision and yet he went ahead with the awarding of the contract and the next phase of the project which was the asking for detailed specifications. He did not inform nor consult the chief executive of this situation when the project at that point could have been re-bid or cancelled altogether. His actions meant the best possible choice of a vendor was not made as he merely settled for the third vendor that made some cursory presentations about their software product. Major Problems Encountered during Implementation Because some of the potential stakeholders within the company (eventual user groups) were not very enthusiastic about the entire project all, he was not able to get their cooperation. His failure to do so resulted in poor assessment of the actual business processes and how these would be affected by the new ERP system. Although the business development manager had made “brown paper maps” as guides, they were not used at all (ibid. 152) in the acquisition process and this even continued during subsequent stages of the implementation such as firming up the roll-out schedules and determining the training and support packages. Major Problems Encountered after Implementation Because the user groups were not very cooperative in the initial phases of the project, the vendor does not have a very good idea of what the actual requirements were. These things only came up during the actual implementation phase which required several major changes or modifications which considerably delayed the project and also lead to user dissatisfaction. Examples of these problems are missing functions (features) and difficulty in using the system because many existing different software packages need to be integrated into the new system. The result was a substantial amount of supplemental work need to be done (ibid. 152). A clear example of this problem was the lack of a “backflushing function” to update stock levels. Specifically, the outside expert team hired to investigate the causes of failure came to two conclusions: poor user interface design (due to lack of cooperation from user groups and to get their ideas and opinions before the acquisition process) and a perceived lack of training or rather inappropriate levels of training (ibid. 152). Although the new system generated a lot of complaints, it was not viewed as a total failure. In fact, some departments were using it more than as expected as in the Customer Orders and Sales departments while low usage was seen in Service (lack of training) department and both in the Design for Manufacture and Planning and Production departments (disabled backflushing function) as shown in Figure 4 (ibid. 153). A total of 29 system modifications need to be made, with 5 of them out of scope of the original specifications when the project was bid out originally. Based on Figure 1, Class of Project is C I would consider the implementation at PowerIT to be Class C. This means there was an incomplete and inaccurate set of data being generated (they could not properly import data from the old MRPII system, for example) and also generating financial statements on specific types of stationery. The company did not gain the integrative benefits of the new ERP system although some departments mentioned earlier were using it more than as expected (ibid. 146). I believe that organizational changes would be harder to implement and achieve than the technical changes. The latter is fairly easy to accomplish while changing people’s attitudes and perceptions can be quite difficult to accomplish. People-factors are usually what cause a new system to fail because they tend to resist changes in the way they do the work. PowerIT needs a good people-intervention strategy in conjunction with its ERP implementation. Formula for Enterprise-system Success Securing Executive Sponsorship – PowerIT initially got its chief executives to endorse the ERP but afterwards, the level of support was not there as there was little involvement by either the CEO or finance director (ibid. 150). It was not given a top-priority status. Getting Help from Outside Experts – the firm only asked for help from outside experts when it was perceived the expected benefits did not materialize. The company may have done better by asking for expert help right from the start of project implementation. Thoroughly Trainer Users – due to the lack of cooperation obtained from user groups, the level of training required was not very exactly determined. The approach of the company and the vendor with regards to training requirements was an ad hoc approach rather than a comprehensive and integrated training approach. Taking a Multi-Disciplinary Approach – an ERP implementation is not all technical details but also involves handling people during a change process. This should be considered by PowerIT and consider how employees are impacted by the technical changes. Looking Beyond ERP – a new concept that is very useful for ERP implementation is the use of SOA or service-oriented architecture (Valacich & Schneider 397). However, an ERP system should not be seen as the end-all or be-all but just a part of any overall system. Conclusion/Recommendation – the firm should just re-implement the existing ERP system with modifications. The system is already embedded deep, technically adequate and many departments have been using it now. Upgrading or scrapping it altogether is very costly. Works Cited Edwards, H. M. & Humphries, L. P. “Change Management of People and Technology in an ERP Implementation.” Journal of Cases on Information Technology, 7 (4). (Jan-March 2005): 143-59. Print. Margulies, N. “Organizational Development and Changes in the Organization Climate.” Public Personnel Management. (March-April 1973): 84-92. Print. Valacich, J. & Schneider, C. Information Systems Today: Managing the Digital World. Vol. 4. Englewood Cliffs, New Jersey, USA: Prentice Hall, 2009. Print. Read More