Challenges and Benefits for Management Control in SME Context - Essay Example

ERP in Action- Challenges and benefits for management control in SME context Today, industrial information systems are mostly implemented through enterprise resource planning (ERP) systems. An ERP system is a modular integrated business software system that facilitates an organization to use its resources efficiently and effectively. Teittinen (280) claims that it is a wide range of system that covers all organization levels and enhances all business activities and processes. In fact, ERP systems have increased the productivity of organizational functions by increasing their continuous access to real-time information and enable them to plan efficiently. This essay evaluates and responds to the challenges and benefits for management control activities in relation to Subject Matter Expert (SME) context. ERP Implementation causes massive change that needs to be carefully managed in order to acquire the benefits of an ERP solution. To ensure successful implementation, there are critical issues that must be carefully considered such as management control. Management control systems have been defined in various ways in the accounting and management literature (279). The current perspective is that control systems in organizations consist of a set of different forms of control that are in systemic interaction with each other. Management control systems consist of seven elements; planning, cybernetic control, reward and compensation, administrative and cultural control. Cybernetic controls are based on the effects of feedback of information and comparison of the goals. Rewards and compensation control are operated when the decision of financial and other benefits are based on goal achievement. Administrative controls use organization structure, policies and procedures to get people in the organization to behave in a desired way (Teittinen 285). As shared beliefs, social and norms create behavioral and control is called cultural control. Researchers have adapted different concepts and approaches to solve problems during ERP implementation. Some scholars see ERP as phenomena that incorporate changes specifically in the areas of culture, business process organization and technology. These changes are challenged by individuals, groups, and even organizational structure as they are used to current procedures and conditions and therefore resist accepting new change. ERP systems currently constitute the fundamental technological infrastructure for accounting and management control systems in organizations. Although they are not a pure accounting system, they are centrally bound and constructed by process of planning and cybernetic control. Therefore, according to Granlund, Mouritsen and Chapman(78) management control and information technology are inseparable. The contemporary ERP systems are guided by the promise of integration that standardizes operations and thereby enables their centralized management (Teittinen 283). This in turn drives them to achieve a high level of performance because of the promise and commitment to solve the most urgent management problems besides molding the organization in the desired form. Basically ERP modern implementation benefits are achieved when a close relation is formed between implementation approach and business-wide performance measures by studying ERP implementation in government organizations, identifying critical management challenges in the ERP implementation activities such as training, upgrading, infrastructure, project management and stabilizing ERP systems (Granlund 61). A considerable indication in this research is stressing innovation in ERP adoption. A minor challenge occurs in the implementation when process is not backed up with careful change management, network relationships and cultural readiness to trigger successful ERP I implementations. Implementations of these modern and highly complex ERP systems are not as unambiguous as has been presented. This has also been observed in recent management and accounting studies which argues that implementation are first and foremost social processes and describe them as a change process though customization and user involvement. They argue that SAP commercial ERP software) will never exist as a tangible object with clearly defined features and it will never reach a stable endpoint. Quattrone and Hoper (2006) studied SAP implementation as one of the multinational organizations and reported that “even after four years of starting its implementation, when it appeared to operate smoothly, SAP was…incomplete.” They concluded that ERP is rather an organizational development journey than a system implementation process. In addition, they argue that ERP is a commitment to change the organization and is a process without end. The main challenge of using ERP system is that entries in the production lines have to be done absolutely correctly. This means according to ERP system that before the user can move on in production, the previous process phase has to be recorded (Teittinen 290). Consequently the next process phase cannot be recorded before the recordings of the previous process phase have been done correctly because the ERP system requires that items have to be in balance. According to a supervisor at a factory, “the production process has not been changed. Products have been produced for years in the same process. But now those processes have now been built into the ERP system and problems occur, especially in making entries in production change. Even with a single error, incomplete recording or recording not done in the entry process could terminate the ERP system (Teittinen 286) Sometimes entries were made long after the concrete production phase, and mistakes and errors in making entries influenced continuous confusions in production. I feel that the production activities and processes should move on in a certain pace and entries to the ERP system. However, emphasis that working hours would be slower when entry fails or balances has to be checked manually. Making changes may prove to be difficult, especially when the basic data in the ERP system are based on certain rough estimates and plans that the system is unable to follow. Investigating innovation aspect of ERP discover organizations that have successfully adopted ERP system which view them among the most important innovations that have led to realization of substantial tangible and intangible improvements in a variety of ERP adoptions. Innovation management facilitates the accordance of ERP implementation with implementations objectives through supporting users in training, maintained and equipment upgrades. Although production management and staff in a certain factory saw very little benefit of using the ERP, the system worked but only when the prerequisites and situations in production fit together. In practice situations in production were constantly changing and in SMEs there were no resources to add these changes into the ERP system. This also created challenges to make entries. Moreover, it was time consuming and frustrating to correct the mistakes. All these affect task performance and satisfaction in production. Making basic entries could be done easily, but when a complicated entry was needed, the monthly profit and loss statement was the main financial control tools. Besides, supervisors in a certain shop floor emphasized the role of production line workers in the use of the ERP system. They criticized the system as no substitute for the human thinking and experience required in the production management. For them the ERP system was just a tool, and the real production planning and management were done elsewhere (Teittinen 288).” It is continuous interaction. People in production planning and production discuss it all the time. The ERP system suggests producing something with detailed routings, but that does not work in practice. That would be fantastic if we just put basic data and orders for everything to go right. But our world changes daily, the order book changes and so doe’s prioritizations therefore customers determine largely what we do.” (Supervisory at Factory] 9.10.2006) It is noted that in practice it is the supervisor who determines and outlines the situation at the shop floor level. Supervisors made the routing decision in practice despite what ERP system suggested. Supervisors emphasized that the ERP system did not outline the environmental and situation in practice. The ERP did what it was commanded to do such as working by the parameters inputted into the system. In my understanding, the challenges in the operational environment in production were due to long and complex production chain. There were many phases that changes occurred thus in production they used the ERP system at their disposal. Minor changes in production on the other hand were not entered in the ERP system. Very challenging cases were outsourcings to subcontractors. The central management required that all basic data be inputted into the system because only through that would entries in the production line follow correctly. Middle management and office staff related the main challenges to making entries but also to personnel resources. The main challenge also arose when people make incorrect entries. This was reportedly due to haste in business processes while trying to meet deadlines and finish their jobs faster. However, this delayed the process in the supply chain. According to accountant newspaper (13.11.2006) “if everybody followed the system and made their orders from the system, everything in accounting would work. But many times people hurry when they feel that their tasks can be done much faster if they don’t touch the system at all. This way they cut corners and later the orders have to be done manually (Teittinen 287). In addition middle management and office staff experienced understaffing and technical problems as the main challenges especially in SME Company. With the increasing pressures at work, employees felt that making entries was not part of their job. Although top management understood that operational environments were different in different plants and that making entries in ERP sometimes under high pressure was demanding and therefore could lead to human error, they stressed on the same ERP logic. Moreover, a lot of resources and time were used to rectify the incorrect entries as some of the sources were untraceable making them difficult to work on. The ERP employed the strategic management level of the organization referred to as the ERP- centered business model which is considered as a prerequisite for management control in Aluminum. The whole organization was required to strictly comply with the ERP system’s work standards and the standard business model (Teittinen 293) In conclusion, the writer was successful in making me believe that ERP systems may have demoralizing effects on the culture of business organizations leading to the disintegration which may cause too burdensome control logic embedded in the ERP implementations. Thus the ERP system makes it challenging to manage the strategic control and operative control in an integrated way. Work cited Granlund, M. Moderate impact of ERPS on management accounting: A lag or permanent outcome? (13)299-321. 2002. Teittinen, H. ERP in Action-Challenges and Benefits for Management control in SME Context. International journal of Accounting Information (14) 278-296. 2013. Read More