Implementation at Leadtek Corporation - Case Study Example

Analysis of ERP Implementation at Leadtek Corporation Name Course Instructor Date Executive Summary This report is based on a case study of an IT company whose enterprise resource planning system failed. The report explores factors that could have caused the failure and explains how the company could have mitigated these problems. It was found that lack of executive support, ineffective implementation strategy and poor training of system users were the main factors that caused the project to fail. Thus, the implementation committee could have avoided these problems by involving the company’s top leadership in every stage of the project and by offering appropriate training to employees. It is recommended that the company procures a different ERP, preferable one that is customized. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 ERP Implementation Failure: A Case Study of Leadtek Corporation 5 ii.How These Problems Could Have Been Avoided Or Mitigated? 8 iii.Recommendations 12 Conclusion 14 References 15 Analysis ERP Implementation Process at Leadtek Corporation Introduction Growing competition in the market is forcing companies to develop innovative strategies for optimizing resource allocation, keeping customers satisfied and improving profitability. In order to overcome competition and other adverse forces, and take advantage of opportunities in the market, companies have resorted to implementing enterprise resource planning systems (ERP) (Maditinos, Chatzoudes & Tsairidis 2012, p. 60-78. These are specially designed process management IT systems that allow companies to use integrated applications to manage business processes. A well implemented ERP, when aligned with an organization’s business objectives, enables employees to have an integrated view and understanding of business processes, which in turn facilitates efficiency in the execution of business roles. It eliminates redundancies and makes employees more efficient and capable of delivering results in less time. ERP systems also enhance collaboration among departments, reduce operating costs and put key business processes under control (Nah & Delgado 2006, p. 59). Yes, despite the integral role that ERP systems play in facilitating business processes, many companies fail to successfully implement these systems. The aim of this report is to explore common problems that cause enterprise resource planning systems to fail. Based on a case study of an IT company, the report will show how the company could have overcome these problems to reap maximum benefits from an ERP system. ERP Implementation Failure: A Case Study of Leadtek Corporation i. Likely Causes of the Problems Experienced by Leadtek Corporation’s ERP Project The decision by Leadtek Corporation to impellent an ERP was a strategic move that could have seen the company become a leading player in the global IT industry. However, the project was not successful and therefore it had to be abandoned despite the huge financial, human and time costs incurred in procuring and implementing the system. An evaluation of the entire process reveals that many factors led to the failure of the strategic project. The most important of these factors was lack of executive support. As noted in the case study, the executive management at Leadtek Corporation did not offer the necessary support to the ERP implementation project. The top managers showed little interest during the initial stages, which started to wane soon due to competing commitments. In effect, the ERP steering committee lacked the necessary leadership as it worked on the project. According to Hanafizadeh and Ravasan (2011, p. 23), executive commitment is a critical success factor in project management. Usually, big projects like that of Leadtek Corporation require many critical decisions to be made at various stages of the project. The best people to make these decisions are those in senior leadership because of the authority and positions they hold. A committed executive performs several other functions during the project implementation process. These include serving as a mentor, a boundary manager and a motivator. The executive also acts a vital link between the steering committee and employees. Since a new system is likely to elicit resistance from employees, involvement of the executive serves to defend and promote the project to employees and other stakeholders (Umble & Umble 2002, p. 26). This essential role of the executive was missing at Leadtek Corporation, a factor that greatly contributed to the problems experienced. Another possible factor that could have caused the problem is lack of adequate training for the staff. According to Nah and Delgado (2006 p. 59), inability of employees to use new systems can lead to failure. Even if the system is implemented perfectly, it will not last long before getting messed if it is not being used correctly. Leadtek Corporation’s staff was not trained properly on how to use the new system. Only a small team consisting of three people from the IT department and five user members was trained to use the ERP system. However, the five user members only dedicated part of their time to the system and because they were busy with their normal work, they saw the ERP as an additional burden. In other key areas, the participation of the rest of the staff was very poor with unknowledgeable persons being chosen to serve in the ERP team. As a result, there was a lot of resistance from different quarters of the staff with employees constantly comparing the new system with the old one. The third factor that could have contributed to the ERP failure is that the ERP system was not customized to handle Leadtek Corporation’s business needs. As soon as the consultant team finished auditing Leadtek current system, it was recommended that an ERP system was necessary. After comparing different brands, it was decided that Oracle Applications Version 11i cold be implemented because the vendor had a local support office, the system met required functionality and was competitively procured. Immediately, the approved system was procured and implemented. The team did not order for a customized version perhaps because this could take time or be costly. So they went for an off-the-shelf version, which was quickly implemented with the expectation that it could provide the best solution to the company’s IT needs. A key disadvantage of an off-the-shelf ERP system is that it requires the company to adjust staff behavior and business processes to fit software specifications. In contrast, a customized ERP fits seamlessly into an organization’s business processes and is easily adopted by employees. In most cases, off-the-shelf ERPs include may features and functionalities that are not relevant to a specific company. This is because these systems are targeted at mass markets (Scott & Vesseym 2000, p. 218-221). For example, the system may include technical solutions and security features that do not conform to a company’s business guidelines. Thus, key features of an off-the-shelf ERP system might be out of sync with an organization’s actual requirements for the system. Because a customized software is designed to be perfectly aligned with a company’s business processes, it can enhance process efficiency and give a company competitive advantages over rivals in the market. Leadtek Corporation failed to achieve any competitive advantages from its ERP probably because the team did not implement a customized one (Umble & Umble 2002, p. 28). The last likely factor that caused the process to flop is poor implementation strategy. According to Yusuf Y, Gunasekaran and Abthorpe (2004, p. 251), implementation of a new system should be done in a systematic manner, taking into consideration key requirement, deliverables and time constraints among other factors. The implementation process should be synchronized with the company’s end goals. In most cases, lack of clear guidelines about the problems that a new system is expected to solve leads to costly challenges during or after the implementation process. In the case of Leadtek Corporation, the implementation strategy adopted by the steering committee was ineffective and incapable of enabling key stakeholders (employees) perceive the benefits of the system. The steering committee did not take time to develop a critical understanding of all the resources (internal and external) required in the project. For internal resources, Leadtek Corporation failed to impellent a timeline of the actual commitment needed for employees in key departments that could be using the ERP system. These departments include finance, accounting, administration and human resources. The fact that employees from these departments did not participate in the initial training and implementation process could have caused serious problems. In addition, most departments could not spare their human resources for the project full time. When implementing a new system, it is customary for extra resources to be called in to support critical processes and have the business moving as users of the new system concentrate on it (Maditinos, Chatzoudes & Tsairidis 2012, p. 60-78). For external resources, Leadtek Corporation failed to establish from the system vendor and the consultants specific skills, timeline and key resources required to successfully implement the new system. Thus, the entire implementation strategy was out of line with the company’s vision of becoming a world class player in the industry. An effective strategy should have factored all business processes, financial needs, human capital capabilities and deadlines and ensure that each one of them is fully addressed (Okunoye, Frolick & Crable 2006, p. 23-26). ii. How These Problems Could Have Been Avoided Or Mitigated? Successful project management is a skill that requires careful evaluation of the current problems, detailed planning and efficient organization of resources. Regardless of the size or nature of the project, mitigation of potential pitfalls is a necessary condition for successful completion of projects (Umble & Umble 2002, p. 26). In light of this consideration, the following strategies could have helped Leadtek mitigate the problems it encountered while implementing the ERP system: a) Employ Robust Change Management Strategies: Change management refers to a structured and systematic approach of helping individuals, work teams and the entire organization to transition from a current and familiar system to a new, unknown system. Change management is an important organizational process that is widely used to help employees to accept, understand and embrace changes in their work environments (Maditinos, Chatzoudes & Tsairidis 2012, p. 63). Failure by Leadtek Corporation to successfully implement an ERP shows that changing a system can be stressful and unwelcomed by most employees. Many of the company’s employees disliked the system and considered it an unnecessary burden. To overcome the resistance, the company could have explained the aim of the change and the problems the new system was expected to address. Moreover, the company could have explained to its employees how the new system could bring efficiencies into their jobs. This could have made the employees to change their negative attitudes and perceive the new system as an essential solution with potential to catapult the company to new corporate heights. In addition, providing feedbacks and updates about the implementation process regularly could have enabled employees to see the positive aspects of the change and embrace it (Yusuf, Gunasekaran & Abthorpe 2004, p. 253). b) Assemble a Representative Implementation Committee: the implementation committee that worked with the consultants was not representative of all the functional departments at the company. Except IT personnel and user members from key departments such as finance were not represented in the committee. To improve acceptance and understanding of the new system, at least one person could have been selected from each department and functional area to sit at the committee. This can make the committee diverse and representative the interests of each department. The committees can then determine the goals, manage deliverables and deadlines, and keep everyone accountable (Ehie & Madsen 2005, p. 545-550). c) Involve the Executive: The ERP implementation process could have progressed well if the company’s executive management was involved in every stage of the process. As Okunoye, Frolick and Crable (2006, p. 23-26) explain, executive involvements helps stakeholders to stay in touch with key deliverables, major project events, and understand the scope and technical aspects of the project. Involvement of the executive management is crucial because the executives are likely to be the ones who made the decision to implement the ERP in the first place. d) Customize the ERP: a customized ERP could help Leadtek in achieving excellence in its business operations. A key benefit of a customized ERP system is that it allows an organization to operate smoothly as businesses processes and workflows remain the same but only the supporting technology changes. With a customized ERP, an organization does not have to alter its business systems because the system is already designed to address specific organizational requirements. Another advantage of a customized ERP is that it helps an organization to remove unnecessary and unwanted features, which minimizes likelihood of confusion among users. Most off-the-shelf systems have lots of features because they are not designed for a specific market. Additionally, a customized ERP could enable Leadtek to add more process features as per its operations. This could be important if the company decided to introduce new processes in future (Huang, Chang, Li & Lin 2004, p. 681-683). iii. Recommendations Despite the challenges that the company encountered while implementing the ERP system, reverting to the old system will be a costly strategic mistake that will have adverse effects on the company’s ability to compete effectively. The following recommendations can help the company deal with the situation: a) Phased Roll-out Strategy: instead of executing the implementation process all at once, the strategy of phased roll-out can help the company overcome many of the challenges it encountered. This strategy involves introducing small changes at predetermined periods over the duration of the project. This can be achieved through the following techniques; phased roll-out by program module or phased roll-out by department. Modular roll-out is the most common strategy. It involves implementing a few modules of the ERP system. Typically, modules for core business units are implemented first. Then more modules and functionalities are added during subsequent phases. If problems are identified in the modules, they can be fixed before implementing the next phase of modules. Departmental phasing involves implementing the ERP in one functional area (department) at a time. For example, the company can implement the ERP in the human resource department and then move to finance department if it is successful (Heiskanen, Newman & Similä 2000, p. 14-16). b) Procure a Different ERP System: the company decided to discard the new ERP system (Oracle Applications Version 11i) after 24 months of unsuccessful implementation. By this time, a newer version Oracle Applications had been released, making the old version obsolete. This means that even if the old version was implemented successfully, it was not reliable because it could need frequent updates. According to Hanafizadeh and Ravasan (2011, p. 23) updating ERPs frequently is very expensive, time consuming and can cause vulnerabilities in the system through loss of confidential data. In addition, it may require users to be retrained and special hardware purchased. To avoid these challenges, the best thing Leadtek can do is to switch to a more stable ERP system. A stable system should be able to be used for a relatively long period of time before new updates are realized. Additionally, the system should be customized to fit well into the company’s process requirements. c) Improve Communication among Key Stakeholders: communication is crucial in project management. Lack of communication is the primary reason why employees and the management showed little support for the project. The project manager should take the lead by developing a communication plan highlighting expectations of stakeholders. The communication plan should be implemented consistently and its outcomes evaluated against set targets. Communication can bring all stakeholders together so that they can agree on the best way of solving the problem (Huang, Chang, Li & Lin 2004, p. 681-683). Conclusion Enterprise resource planning systems are a key source of competitive advantages in any industry. These systems help companies to streamline diverse business processes with a unified integrated system. They also eliminate redundancies in process execution, improve customer service and reduce inventory costs. Despite these advantages, some companies face difficulties when implementing ERP systems. For example, Laedtek failed to implement its ERP system due to poor organizational culture and ineffective implementation strategy. Successful ERP implementation requires strategies, resources and full commitment of key stakeholders, especially top management. It also requires continuous training of system users and evaluation of deliverables. These key requirements were missing at Leadtek, which led to the immediate failure of the project. References Ehie, I & Madsen, M 2005, ‘Identifying critical issues in enterprise resource planning (ERP) implementation’, Computers in Industry, vol. 56, no. 6, pp. 545-557. Hanafizadeh, P & Ravasan Z 2011, ‘A McKinsey 7S model-based framework for ERP readiness assessment’, International Journal of Enterprise Information Systems, vol. 7, no. 4, pp. 23. Heiskanen A, Newman M & Similä J 2000, ‘The social dynamics of software development’, Accounting, Management and Information Technologies, vol. 10, no. 1, pp. 1-32. Huang S, Chang I, Li S & Lin M 2004, ‘Assessing risk in ERP projects: Identify and prioritize the factors’, Industrial Management & Data Systems, vol. 104, no. 8, pp. 681-688. Maditinos D, Chatzoudes D & Tsairidis C 2012, ‘Factors affecting ERP system implementation effectiveness’, Journal of Enterprise Information Management, vol. 25, no. 1, pp. 60-78. Nah, F & Delgado, S 2006, ‘Critical success factors for enterprise resource planning implementation and upgrade’, Journal of Computer Information Systems, vol. 46, no. 5, pp. 99. Okunoye A, Frolick M & Crable E 2006, ERP implementation in higher education: An account of pre-implementation and implementation phases, Hershey: IGI Global. Scott, J & Vesseym, I 2000, ‘Implementing enterprise resource planning systems: The role of learning from failure’, Information Systems Frontiers, vol. 2, no. 2, pp. 213-232. Umble, E & Umble, M 2002, ‘Avoiding ERP implementation failure’, Industrial Management, vol. 44, no. 1, pp. 25-33. Yusuf Y, Gunasekaran A & Abthorpe M 2004, ‘Enterprise information systems project implementation: A case study of ERP in rolls-royce’, International Journal of Production Economics, vol. 87, no. 3, pp. 251-266. Read More