Impact of ERP on Management Accountant - Term Paper Example

Impact of ERP on Management Accountant

ABSTRACT

Enterprise Resource Planning (ERP) systems have emerged as popular Information Technology tools in today’s business environment that is characterized by numerous changes. These systems are increasingly adopted in various fields including accounting to help enhance the efficiency and effectiveness of operations. The impact of Enterprise Resource Planning (ERP) on management accounting has been investigated in several studies in the recent past. Most of these recent studies have focused on examining whether management accounting has changed because of the adoption of Enterprise Resource Planning (ERP) systems. The main objective of this paper is to review some of these studies to determine the different perspectives on how ERP affects management accountant. While the results are diverse, they demonstrate that Enterprise Resource Planning (ERP) has positive impacts on management accountant, especially with regards to the role of management accountant in handling accounting/financial issues.

Keywords: Management Accountant, Enterprise Resource Planning (ERP), Impact.

INTRODUCTION

One of the most popular Information and Communication Technologies (ICT) in today’s changing business environment is Enterprise Resource Planning (ERP) systems (Kholeif, 2011). ERP systems have emerged as crucial ICT tools because they promote the blending of business process integration. Additionally, the emergence of ERP as a vital system in the changing business environment is influenced by the consideration of Information Technology as a means of promoting automation of business processes and changing business operations. Through adopting advanced IT tools like Enterprise Resource Planning (ERP) systems, businesses enhance their competitiveness in the market (Sangster, Leech & Grabski, 2009). Consequently, Enterprise Resource Planning (ERP) systems like SAP have become common in the past few years, particularly in large companies (Scapens & Jazayeri, 2010).

Modern management accounting is regarded as nearly impossible without the incorporation of Information Technology (IT) systems given the numerous changes that have characterized common management accounting practice (Gärtner & Krichbaum, 2014). This has provided the premise for adoption and increased use of ERP systems in contemporary management accounting. Since these systems have been increasingly adopted in today’s management accounting, they have considerable implications on the role and work of management accountants.

The impact of ERP systems on management accountant has been the subject of numerous studies though minimal attention has been given to ERP systems in accounting research journals (Scapens & Jazayeri, 2010). The purpose of this paper is to conduct a review of relevant literature on the impact of ERP implementation on management accountant. In this regard, the researcher has identified 19 Google Scholar articles published between 2001 and 2017 on this topic. These articles provide different perspective on this issue, particularly on how Enterprise Resource Planning systems have impacted the role of management accountant. Based on these different perspectives, the review is centered on ERP success factors, ERP failure factors, impact of ERP implementation upon management accountant, recommendation for management accountant in an ERP environment, and business and implementation issues.

ERP SUCCESS FACTORS

From most of the identified articles for this review, there are various factors in successful implementation of Enterprise Resource Planning (ERP) in the field of management accounting. Sangster, Leech & Grabski (2009) contend that there are various success factors in the implementation of ERP systems in management accounting. Through a survey of accounting organizations that have implemented these systems, the researchers found that ERP success factors include project management, change management, alignment of business with information system, consultant and planning activities, and oversight/internal audit activities (Sangster, Leech & Grabski, 2009). Even though these researchers did not specify whether all these factors are required, they argued that they are critical towards the successful implementation of ERP systems.

Kholeif (2011) provide a different perspective on ERP success factors by arguing that management accounting methods utilized by many American industries have remained the same since 1925 though radical changes have been experienced in manufacturing techniques and environment. In this regard, successful implementation of ERP systems in management accounting requires innovation. Management accounting systems need to adapt advanced manufacturing techniques as part of innovation towards the successful implementation of Enterprise Resource Planning (ERP) systems. Commitment to innovation acts as a crucial factor towards successful implementation of ERP because of the changing nature of operations and business environment. Due to these changes, conventional management accounting systems are not suitable for planning and control in the new management accounting environment. Therefore, accounting organizations implement ERP successfully through a commitment to innovation.

Gärtner & Krichbaum (2014) contend that successful implementation of ERP systems in management accounting requires a suitable organizational structure and culture. The organizational structure should be designed in a manner that promotes decentralization of management accountant functions. On the other hand, the organizational culture should foster innovation and integration of business functions with information systems.

ERP FAILURE FACTORS

According to Aloini, Dulmin & Mininno (2007), there are four major categories of ERP implementation failure factors i.e. process, expectation, correspondence, and interaction failures. Process failure occurs when the implementation project is not carried out within the stipulated period and budget whereas interaction failure is attributable to negative attitudes towards IT by users. On the other hand, expectation failure is attributable to the failure by ERP systems to meet user expectations while correspondence failure is when the systems fail to align with the desired objectives for adoption and implementation (Aloini, Dulmin & Mininno, 2007).

Sangster, Leech & Grabski (2009) concur by citing additional ERP failure factors such as inadequate training, lack of adequate education and management commitment, inadequate resources, and poor selection of ERP package. In concurrence, Saqib et al. (2012) contend that there seven basic reasons/factors for ERP implementation failure. These factors include taking ERP casually, poor selection of ERP package, lack of top management commitment, poor Information Technology infrastructure, inadequate system requirement specifications, poor returns on investment, and poor implementation and testing framework (Grabski, Leech & Sangster, 2009; Saqib et al., 2012).

Galani, Gravas & Stavropoulos (2010) provide a slightly different perspective of ERP failure factors by arguing that business plan and vision as well as effective communication are crucial in implementation of ERP systems. Therefore, the major ERP failure factors include change of management systems and culture, organizational structure, and management support.

IMPACT OF ERP IMPLEMENTATION UPON MANAGEMENT ACCOUNTANT

Chen et al (2011) contends that the implementation of Enterprise Resource Planning systems changes the role of management accountant. In this regard, management accountants act as supervisors following the implementation of these systems. However, to be effective in their role as supervisors following ERP implementation, management accountants need to possess knowledge of conventional financial accounting, Information Technology, and management. Similarly, Scapens & Jazayeri (2010) found that ERP implementation has positive impacts on the role of management accountant in comparison to the conventional accounting environments that do not involve the use of technological tools like ERP. While these researchers argue that ERP implementation has no fundamental impact on the nature of management of accounting information, it changes the role of management accountant. Scapens & Jazayeri (2010) found that ERP implementation changes the role of management accountant to become a supervisor through lessening routine work undertaken by these accountants. Following ERP implementation, management accountants conduct more analysis of results because of the supervisory role brought by ERP implementation unlike in conventional accounting settings.

Scapens & Jazayeri (2010) maintained the view that ERP implementation transforms the role of management accountant through eliminating routine tasks and generating more forward-looking information. ERP systems have been found to have implications for the role of management accountants because of the relationship between these systems and management accounting processes (Bryne & Pierce, 2007; Gärtner & Krichbaum, 2014). Grabski, Leech & Sangster (2009) contend that ERP implementation changes the role of management accountant through transforming their focus and work to more forward-looking analyses. Through this process, the management accountant becomes an expert who can provide insight regarding the business processes of an organization and help in the identification of areas that require improvement following implementation of ERP systems. The ability of management accountant to act as experts who can provide insights is attributable to the capability of ERP systems to promote consistent application of business rules (Grabski, Leech & Sangster, 2009).

In concurrence, Malinic & Todorovic (2012) found that ERP implementation has significant impacts on the role of management accountants with regards to lessening the time required for conventional management accounting activities. During this process, ERP systems increases the time required for data analysis activities, strategic reporting, and performance measurement. Malinic & Todorovic (2012) conclude that implementation of ERP systems seems to make management accountants to assume supervisory roles when conducting their work as compared to the traditional role of these professionals.

Abbasi, Zamani & Valmohammadi (2014) argue that implementing Enterprise Resource Planning systems has been found to have numerous positive impacts on management accounting. Through examining the effect of ERP systems on management accounting in Iranian organizations, these researchers found that the implementation contributes to enhanced standard levels and quality of reports. Given the significant capabilities of ERP systems, their implementation enables management accountant to improve standards levels of accounting and generate high-quality reports. Additionally, implementation of ERP systems enables management accountants to enhance decision-making processes based on real-time and reliable accounting information. As a result, ERP implementation enables management accountants to play a critical role in enhancing organizational integration and empowering personnel Abbasi, Zamani & Valmohammadi, 2014).

Granlund & Malmi (2002) contend that implementation of Enterprise Resource Planning systems have relatively moderate impact on management accounting processes and management accountants. Based on the findings of their study, Granlund & Malmi (2002) contend that the implementation of these systems have a stabilizing impact on management accounting practice and its development. This stabilizing effect is attributable to the fact that ERP systems promote innovative development and use of up-to-date management accounting information and systems. Consequently, ERP systems contribute to role change of management accountants due to innovative development and use of real-time and reliable management accounting information. As demonstrated by other studies, Granlund & Malmi (2002) found that ERP implementation contribute to role change of management accountants through lessening the amount of routine work associated with transaction handling and focus on more analytical work. Moreover, following ERP implementation, management accountants carry out more value-addition activities with regards to decision-making and managerial control.

Scapens & Jazayeri (2010) provide a different perspective on the impact of the implementation of Enterprise Resource Planning (ERP) systems on management accountant. These researchers contend that ERP implementation only has a minimal impact on the work of management accountants and character of management accounting. This view seemingly supports the idea proposed by Granlund & Malmi (2002) that the specific utilization of an ERP systems and its impact on management accountants have been neglected thus far. Schlichter & Kraemmergaard (2010) concur by arguing that not all organizations have utilized ERP systems effectively, especially in relation to their management accounting processes.

Sangster, Leech & Grabski (2009) contend that ERP implementations towards enhancing management accounting processes and work has been less than successful because of the use of conventional IT philosophy as the premise for the implementation process. Most organizations that are currently implementing ERP are utilizing conventional IT philosophy instead of ERP implementation philosophy, which in turn contributes to moderate effect of ERP systems on management accountants. Even when ERP systems are successfully implemented, organizations do not generate any long-term competitive advantages, particularly in relation to management accounting processes.

Hyvonen (2003) found that there is no link between ERP implementation and the utilization of contemporary management accounting techniques. As a result, the implementation of enterprise resource planning (ERP) systems has relatively moderate impacts on management accounting processes and the work of management accountants. Consistent with Hyvonen (2003), Chen et al (2012) contends that implementation of ERP systems do not necessarily promote the positions of management accounting or accounting department in an organization. Moreover, these systems do not promote management accountants with regards to the subjective cognition of accountants. This is primarily because accountants need to have knowledge in financial accounting, management, and Information Technology after implementation of Enterprise Resource Planning (ERP) systems.

RECOMMENDATION FOR MANAGEMENT ACCOUNTANT

Given the impact of ERP systems on management accounting processes and the role of management accountants, there are some recommendations for management accountant based on existing literature on this issue. Chen et al (2012) contends that management accountants in an ERP environment need to have knowledge in IT, financial accounting and management in the aftermath of ERP implementation. In concurrence, Etemadi & Kazeminia (2014) argue that the change in role of management accountants due to ERP implementation necessitates these professionals to have certain skills. Some of these skills include effective communication skills, planning and analytical skills, leadership skills, decision-making skills, technical skills, commercial understanding, general skills, and honesty and integrity. The need for these skills is partly attributable to the fact that ERP implementation changes the role of management accountants to become active partner in management planning and control procedures.

Daoud & Triki (2013) argue that management accountants in an ERP environment need to develop competencies in management and Information Technology. According to Sanchez-Rodriguez & Spraakman (2012), management accountants in an ERP environment need to develop analytical skills. This is primarily because ERP systems enable management accountants to become less engaged with data entry while permitting them to undertake more analytical tasks including analysis of non-financial information. Therefore, development of analytical skills enables management accountants to become more effective in their new roles brought by implementation of enterprise resource planning systems.

BUSINESS AND IMPLEMENTATION ISSUES

Sangster, Leech & Grabski (2009) argue that one of the major business and implementation issues facing the adoption of ERP systems is lack of strong understanding of business and skill sets after the implementation process. Additionally, ERP implementation is associated with significant costs that generate significant challenges during adoption. According to Kholeif (2011), the adoption/implementation of ERP is faced with the issue of conventional IT philosophy. Many organizations adopt ERP using traditional IT philosophy instead of using ERP IT philosophy (Sangster, Leech & Grabski, 2009).

CONCLUSION

This literature review demonstrates that ERP implementation has considerable impacts on management accountant because it transforms management accounting processes. While some studies postulate that ERP systems have moderate impacts on management accounting, it is quite clear that these systems change the role of management accountants. As a result, management accountants need to develop necessarily competencies to handle their new roles.