Critical Analysis of Adoption of SAP in Business - Essay Example

CRITICAL ANALYSIS OF ADOPTION OF SAP IN BUSINESS Contents Contents 2 Introduction 3 Overview of SAP 3 Accounting and financials 4 Relationship management 4 Challenges and benefits 5 Recommendation 7 Conclusion 8 Reference 10 Introduction SAP was designed by 5 IBM employees in 1972. While in IBM these 5 employees were engaged in the AI department were working on a project that was aimed at developing scientific data systems for its enterprise wide application. However IBM scrapped this project but these 5 individuals were so engrossed with the project that they left IBM and developed the package on their own. Since its first software package that was aimed at Enterprise Resource planning SAP has set a milestone for success. In fact many software giants such as IBM and Microsoft use SAP in order to run their business. The following report is a critical analysis of adoption of SAP systems in business environment and challenges and benefits that are derived by implementing SAP from accounting perspective. For the purpose of analysis first an overview of the SAP systems is provided and is compared with Oracle financial accounting. Challenges and benefits of SAP are analyzed by means of literature review. From the analysis of challenges recommendations are provided which lead to the success factors of SAP. Overview of SAP SAP stands for Systeme, Anwendungen, Produkte which is the German word meaning Systems applications and products. SAP ERP system is used to encompass a wide range of software products that supports day-to-day business operations and activities. ERP serves different industries and several functional aspects in integrated approach. The attempt is to automate different operations from supply chain management, inventory control and almost any management process that uses data. Many business organizations use SAP for their entire business functions. Other business organization use SAP for some specific business functions only. The reason for the wide acceptance and the popularity behind SAP is this functionality that allows it to be designed and customized in accordance with the requirement of particular organization. Most organizations earlier used standalone software to perform ­­­­individual functions. However since ERP has been invented all these individual and stand alone functions have been integrated and can be performed by this single software package alone. In case of standalone system for a particular change to be incorporated and taken into account the companies had to modify each functional software separately which was time consuming and expensive. However, since SAP has come into the picture all this cumbersome and difficulties have been resolved. For example if a salesman would have earlier completed an order then it was required that different related functions such as the order book, inventory level, change in production plans, generation of invoices, generation of purchase orders etc. would have to be updated separately. However, since ERP has evolved all this functionalities have been integrated so that if a sales person completes an order then automatically the inventory level is adjusted, invoices in generated, purchase order is generated and production plans are changed upon entry of just the order amount in the system. The main advantage of this integrated system is that it helps in reducing time and helps in effective utilization of time. ERP also helps the management to make accurate decisions. The managers can make better informed decisions based on current data and workers to have better access to data which in turn helps them to serve their customers in a better and more efficient way. SAP offers different features in several functional areas. The functional areas are Accounting and financials SAP offers solutions in the field of financial accounting, budgeting, banking and financial reporting Customer Relationship management SAP offers solutions in the areas of Sales opportunity management; Web based CRM, Customer service and support, Business partner management, Microsoft outlook integration. Other functional areas in which SAP performs are Procurement, production planning, material management, logistics, sales, human resource etc. Oracle can be used by a single database but SAP needs more databases including ORACLE interface. Oracle e-Business suite is fully web based and integrated. It includes many upstream and horizontal products. SAP on the other hand has a strong architecture and concept that is cantered around four pillars that are development, test, pre production and production. SAP is more fixed and rigid where as Oracle is more flexible. Challenges and benefits IT has brought along with it many changes in the business sector in recent years. According to Rom and Rohde (2006), companies across the globe have started implementing and adopting ERP packages and systems in order to integrate different processes or departments while utilizing a single database (Rom and Rohde, 2006). According to Nicolaou (2003), the development of enterprise resource planning systems means a radical shift in the way business are operated in terms of the fact that SAP can combine different business processes or applications so that it can respond to information that are current (Nicolaou, 2003). According to Sutton (2006) this means that different information systems are being replaced by single ERP software that integrates the functions of all such individual information systems. This in turn implies that ERP systems have significantly altered the way in which business used to collect, store, analyze and disseminate information (Sutton, 2006). According to Bae (2004) SAP has become a leading provider among different ERP developers by providing a powerful, unique and comprehensive product. However they caution that SAP has several drawbacks like it is costly, it is a complex software package and it is difficult to implement. They say that while deciding on the fact as to whether go for implementation of SAP a particular company should well evaluate the cost and benefits. The analysis should be based on the consideration that once SAP is successfully implemented it will be able to give benefits in terms of efficient and effective management of information. However on the flipside it will include huge monetary cost to the tune of $100 million and time commitments in terms of thousands of hours that the employees have to spend in trying to implement the package (Bae, 2004). According to Nicolau and Bhattacharya (2008), the firms going in for implementation of ERP system must be enough aware that ERP’s are different from other IT systems. The implementation of ERP brings about a change in the business processes of the firms and in this context implementation of SAP ERP represents for the company post implementation challenges. However the researcher duo also argues that if the organization’s performance is evaluated from an overall perspective then it can be found that there is a positive relation between implementation of ERP SAP and organization’s performance (Nicolau and Bhattacharya, 2008). According to Granlund and Malmi (2002) implementation of ERP has an impact on the accounting processes and accountants role. ERP systems help the enterprise to incorporate and implement new accounting practices by an enterprise. More specifically ERP can be used to implement and procure data and can be used to aid in implementing and using the acquired data across the organization (Granlund and Malmi, 2002). According to Javernpaa (2007) ERP systems helps in adoption of new accounting systems by the companies. According to Gutu, Joseph, Manauere and Edison (2012), who investigated the factors that lead to the non adoption of computer based accounting information system mainly Enterprise Resource Planning by enterprises that range from small to medium. They selected sample size was of 72 SMEs was chosen from a population of 100 SMEs. The sampling method used was stratified sampling followed by random sampling. The researchers used questionnaires and interviews for collecting data. They found through their research that cost benefit analysis, lack of government support, financial constraints, and complexity of ERP SAP systems are the factors that lead to non adoption of ERPs by SMEs. Ignorance about ERPs and reluctance however cannot be stated as a factor behind the non implementation or adoption of ERP by SMEs. They found through their research that adoption of ERP by the company did not depend on the company size as well. In order to implement and facilitate in implementation of ERP software package the researchers suggest the government must intervene and provide necessary help. The government can help by providing subsidy or through provision of collateral securities through various departments. The government departments and ministries through which help can be extended are ministries of small to medium enterprises and ministry of information technology. These ministries can extend help through providing of subsidies and provision of collateral by which the government can help to easily adopt ERP software (Gutu, Joseph, Manauere and Edison, 2012). Through the above review of literature it can be easily stated that ERP is one of the most important software packages and has several advantages that can be used to the benefit of enterprise. The advantages provided by ERP are streamlining the different functions of the company and aligning the different functions of the company. The advantage that this system generates is that the time is saved because the different processes are integrated so duplicity of labour is also saved. However the major problem that is hindering the wide scale implementation of ERP is the cost factor. Recommendation ERP is very useful software in the modern business world. It has changed the way businesses are done now days. The way ERP has revolutionised the modern day business scenario is by providing for and supporting the streamlining of business processes. The advantages of ERP are that it provides a comprehensive system. By comprehensive system it is meant that through ERP various individual functions can now be integrated. Integrating of various individual functions helps in saving time because after the coming of ERP to the business scene, entering of data in a single functional area correspondingly changes the data of all other related functionality. This means that a lot of time is saved after ERP has arrived and been implemented in the business environment. Additionally ERP helps the manager to make better informed decisions by analyzing all the data and information from all the functional components at the same time. The ERP helps the worker because the worker especially sales force can look at all the data at the same time comprehensively and can better interact and respond to customer requirements. However there is a major fault or rather inhibiting factor that hinders the implementation of ERP on a wide spread scale. The major drawback of ERP is the huge cost required in implementing ERP in a particular business. The cost is most of the times so huge that the companies specially the small and medium enterprises find it extremely difficult to afford ERP. This problem can be overcome with active government help and support. Government can support the Small and medium enterprises in implementing ERP by providing them subsidiaries. The organization can also be helped by the parent organization by means of providing for flexible payment system, if it wants to spread SAP widely. The second inhibiting factor is the complexity of software package. The organizational structure specifically the IT structure and the business process has to undergo massive change if the organization goes in for implementing ERP. To avoid this inhibition the company must carefully analyze the cost and benefit that can accrue from implementing ERP. The company can provide the required training to the workforce so that they can easily adopt ERP and results in efficient running of business. Conclusion This report analyzes ERP and its implementation in the context of business processes. The report analyzes the adoption of ERP critically in the context of a business operation. The analysis in this context is the benefits and challenges that arise out of the implementation of ERP. In order to analyze the adoption of ERP in the context of a business environment survey of available literature in this field is done. From the analysis it is concluded that the ERP is pretty useful, necessary and effective tool for the modern day business. It provides a competitive advantage for the businesses. However the major drawback of using ERP and hindrance in adoption of ERP is the high cost in implementation of ERP system. Another hindrance is the complexity of ERP system. It is recommended for the company to do a cost benefit analysis before going in for implementation of ERP. Another factor that can help in implementation of ERP is government providing subsidies to help in implementing ERP. Reference Granlund, M. and Malmi, T. 2002. Moderate impact of ERPs on management accounting: a lag or permanent outcome? Management accounting research. 13(1). pp. 299-321. Javernpaa, M. 2007. Making Business Partners: A case study on how management accounting culture was changed. European accounting review. 16 (1). pp. 99-142. Nicolaou, A. and Bhattacharya, S. 2008. Sustainability of ERPs performance outcomes: The role of post-implementation review quality. International journal of accounting information systems. 9 (1). pp. 43-60. Sutton, S.G. 2006. Enterprise systems and the re-shaping of accounting systems: a call of research. International Journal of accounting information systems. 7(1). pp. 1-6. Rom, A. and Rohde, C. 2006. Enterprise resource planning systems, strategic enterprise management systems and management accounting. A Danish study. Journal of enterprise information management. 19(1). pp. 50-66. Nicolaou, A. 2003.Manufacturing strategy implementation and cost management systems effectiveness. European accounting review. 12(1). pp. 175-199. Gutu, K., Joseph, M., Manuere, F. and Edition, G. 2012. Evaluation of factors influencing adoption of accounting information system by small to medium enterprises in chinhoyi. Interdisciplinary journal of contemporary research in business. 4(6). pp.1126-1141. Bae, B. B. and Ashcroft, P. 2004. Implementation of ERP Systems: Accounting and Auditing Implications. I n f o r m at i o n s y s t e m s c o n t r o l j o u r n a l. 5(1). pp.10-12. Read More