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TRANSPLANTING THE BEST PRACTICE FOR
IMPLEMENTATION OF AN ERP SYSTEM: A
STRUCTURED INDUCTIVE STUDY OF AN
INTERNATIONAL COMPANY
SHl-MING HUANG
National Chung Cheng University
Chia-Yi, Taiwan
HOUN GEE CHEN
National Tsing Hua University
Hsin-Chu, Taiwan
YU CHUNG HUNG
Tatung University
Taipei, Taiwan
CHENG YUAN KU
National Chung Cheng University
Chia-Yi, Taiwan
ABSTRACT
as well. In this light, many enterprises have devoted themselves
to implementing enterprise resource planning (ERP) systems.
ERP systems, which provide system flexibility, quick
response and resources integration, were introduced in the early
1990s to cope with the changing market requirements. The ERP
system not only provides real-time information to the enterprise,
but also improves business operations flow by means of
advanced information technology. In addition, ERP systems
improve the efficiency of management decisions and plans and
increase the flexibility with adjustments of functionality to react
to changes in business needs (Zheng, Yen, and Tarn, 2000).
Furthermore, an ERP system is built up with core business
operations by integrating aspects such as business strategy, sales
and distribution operation, manufacturing process, finance and
accounting methodology, as well as human resource function. It
is a business trend to change the traditional role of a computer
system froiii a transaction processing system to an enterprisewide management system.
Enterprise Resource Planning (ERP) systems have the
potential to integrate seamlessly organizational processes using
common shared information and data flows. The implementation
of ERP systems involves sophisticated business processes
integration and conflicts between different departments of the
organization. Furthermore, it also costs organizations a huge
amount of money and manpower. Therefore, even major ERP
vendors cannot guarantee the success of implementation.
Consequently, how to implement ERP systems successfully in
an effective and efficient manner is an imperative issue in the
field of enterprise information systems. Major ERP package
vendors have recently used the concept of Best Practice (BP),
which is related to transfer the past successful experience to the
new ERP projects, to make the implementation effective and
efficient. In this paper, we investigate the influences of the BP
through a structured inductive study of an international
conglomerate by examining their successful implementation of
ERP projects. It is not surprising that the results of this study
indicate that transplanting BP from the parent company to
subsidiaries indeed plays a key role on the implementation of
ERP systems. The results also reveal that successful
transplanting of BP has positive impacts on the success in ERP
implication, through reducing the cultural discrepancies,
boosting project efficiency, and empowering coordination of
systems integration.
Keywords: Enterprise Resource Planning (ERP), Best
Practice (BP), Knowledge Management (KM), Critical Success
Factor (CSF).
INTRODUCTION
Changing market demands, shortened product life cycles
and growing global competition have increased pressures on
enterprises. It is definitely more difficult and complicated to
manage a company under intense pressures of competitive
market pricing. Managers therefore must rely on real-time
information in order to make vital decisions correctly and
promptly. To achieve business targets and maintain long-term
competitive advantage, real-time and precise operation flows
must be integrated within the organization, and information
technology and limited company resources must be fully utilized
Summer 2004
Owing to the complicated integration of organizational and
technical levels, the implementation of ERP systems has been
difficult to achieve in practice. According to the comprehensive
survey conducted by Robbin-Gioia (2002), 51% of American
companies said that their ERP system implementation was
unsuccessful. More surprisingly, 46% of the responding
companies did not clearly know how to use the ERP system to
improve the way they conduct business. In addition, PMP
research (2001) finished an ERP-related survey on the impact of
manufacturing system, and the results pointed out that 70% of
the sample companies believed that the average implementation
time of ERP system ranges from six months to two years. As
regard to the investment effort of ERP system in U.S. Top 5000
manufacturing firms, more than 68% of companies would
employ the Big Bang methodology to change their system and
business processes at one time, and ERP system implementation
costs companies at the average of approximately one million
dollars, as indicated by the survey results of Mabert et al.
(2000).
Although challenged by extremely high costs, long
duration, and high failure rate, enterprises today still keep
struggling to implement ERP systems. In 1998, more than 27%
of companies in Europe, especially large and international ones
had already implemented ERP systems (Everdingen et al.,
2000). However, the major ERP vendors such as SAP and Baan
Journal of Computer Information Systems
101
were suffering from the maturity-of-market problem, and the
price of their stock declined at the end of the 1990s, In addition,
there were even articles predicting that ERP will be dead
(Dempsey, 1999; Stein, 1999), Nevertheless, the ERP vendors
are now trying to fight for the next generation of ERP systems
and extend their market to companies in developing countries,
small and medium-sized enterprises, and different kinds of
industries (Kumer et al,, 2000).
Themistocleous et al. (2001) found that the major technical
problems facing organizations undertaking ERP implementation
were “Integration with Existing Systems,” “Customization,” and
“Integration with Other Applications.” Moreover, the results
also showed that the major ERP project management problems
are “Project Cost Overruns,” “Project Delays,” “Conflicts with
Business Strategy,” and “Employees Resistance to Change.” To
both overcome the existing ERP implementation problems and
extend market share, the major ERP vendors such as SAP and
Baan are now providing implementing reference models or
process templates that embody the idea of best practice (BP).
The essential intention of applying BP is to speed up the
implementation of ERP systems and increase the success rate of
adoptive customers. More recently, the BP-related information
is the most important knowledge asset of main ERP vendors in
the next generation arena.
Instinctively, BP should have a positive impact on the
implementation of ERP systems, especially since BP attracts
significant attention from international companies. Because each
parent company has successfully implemented the SAP/R3
system, it naturally transplants the BP to subsidiaries’ SAP/R3
implementing project. However, few related researches clearly
pointed out the role of BP and its influence.
In this paper, we extended the previous work (Huang et al.,
2001) and aim to identify the BP, investigate the role of BP in
the ERP project through a case study of a cross-national P
company, and give future directions to both academics and
practitioners in the field of ERP systems. It is hoped that our
findings will shed light on BP issues in the implementation and
adoption of ERP systems,
LITERATURE REVIEW
Currently, most popular ERP systems adopt the modular
concept in design euid implementation. Under this concept,
system developers have separated the ERP system into several
modules according to the managerial functional area and provide
different solutions to specific industry. SAP/R3 is a typical
example of modular design, A different approach toward ERP
systems design involves the operation process. Under this design
concept, the ERP system focuses on integrating the business
internal operation information to streamlining the information
flow among all functional departments. Through this
streamlining feature, the impact of asymmetric information
between internal functional departments may be alleviated to the
best possible extent and to facilitate, customer-oriented
production.
Due to the difficulties in implementing the ERP systems,
the concept of the BP becomes fairly commonplace, especially
for the major ERP vendors. The giant ERP vendors, such as
SAP, incorporated the previous best implementing practices on
the implementation of their ERP package modules to speed up
implementation time and increase the success rate of new
customers. However, the failure rate of ERP implementation
remains high and the concept of BP has been applied not only to
the practical business process flow or successful cases, but also
to management perspectives such as implementation experience
knowledge, project management knowledge, and risk
management knowledge.
There still lacks appropriate attention on the role and
influences of BP on the implementation of ERP systems.
According to Bogan et al. (1994) and Zairi (1996), BP may be
defined as strategies, activities, or approaches of performing
work processes to achieve high performance, O’Leary et al.
(2000) referred to BP as “the best way to perform some activity”
in knowledge management systems. Dutta et al. (1999) defined
the BP as “using systematic processes and management
practices such as Capability Maturity Model and Bootstrap for
the management of software engineering and to improve their
development processes” in software engineering perspective,
Curran et al. (2000) defined the BP as “contributing to the
customers to examine many proven processes without the cost
of benchmarking themselves against another organization” in
SAP R/S project.
Table 1 shows the related research on ERP implementation.
As can be seen, these studies focus mainly on ERP
implementation and how to increase the success rate of
implementing ERP systems. The importance of considering ERP
success at multiple points in time was determined by Kim and
Peterson (2000) and Ahitur et al. (2002), Their research results
show that a company’s success or failure is not a reflection of a
single action but rather a result of protracted process. Therefore,
it is important to understand how the past ERP implementation
experience impacts new ERP implementation projects.
TABLE 1
Related Research on ERP Implementation
Tareet Area
ERP implementation concept
Related Research
Davenport, 1998; Cliffe, 1999; Krumbholz et al., 2000; Adam et al.,
2000; Sho et al., 2000; Mark et al., 2000; Chiara, 2001; Huang and
Kim, 2002; Robert, 2002; Kim and Peterson, 2000
Holland et al,, 1999; Anne et al., 2000; Scheer et al., 2000; Markus
et al., 2000; Christopher et al., 2001; Huang et al., 2000; Motwani et
al,, 2002; Rajagopal, 2002; Ahitur et al., 2002
Zoonky et al., 2000; Kuludeep et al,, 2000; Scotty and Kaindl, 2000
ERP implementation model or methodology
Knowledge Management on ERP implementation
RESEARCH METHOD
This study uses a structured inductive method for deriving
BP from parent company to be transplanted to subsidiaries. In
Summer 2004
this research, the definition of BP is the knowledge of critical
success factors of ERP implementation. This definition is
adopted from Zairi (1996) and Curran (2000). To ensure that the
ERP system can be successfully implemented in subsidiaries, it
Journal of Computer Information Systems
102
is important to know whether the parent company’s consulting
team has suceessfuUy transferred their knowledge to the
subsidiaries. However, the critical success factors may differ not
only according to the management view of the company but also
with respeet to localization, culture, etc. (Franz, 1993).
To understand the key success factors, this study starts with
an interview of the ERP implementing members of the parent
company. The aim is to gather their past experience knowledge
as the BP for the study. To verily whether the BP has been
successfiilly transplanted to the subsidiary, a questionnaire is
sent to the ERP key users of the subsidiary. The purpose of the
questionnaire is to make this study more credible by a
systematic and structural investigation and analysis, including
not only top management but also all related major users. The
measurement indicated that a higher score implies a higher
degree of BP influencing the ERP implementation success
factor, while a lower score implies a lower degree of BP
influencing ERP implementation success factor,
PHASE I: GATHERING BP
The first phase of this study is to conduct an interview with
the RISE project members. The objectives of this phase are to
understand the status of the project and to gather the RISE team
members’ ideas about the CSFs from the BP of ERP
implementation in the parent company. From the successful
experience in Europe and America, this team identifies the CSFs
of ERP implementation including: (1) facilitating the effective
business process reengineering, (2) providing sufficient/
appropriate training, (3) building good communication and
coordination among different business units, (4) integrating
legacy systems with EPR, (5) having good project team/
management, and (6) receiving full support from the
management team. The CSF would be confirmed by literature
review. The CSFs in each aspect are confirmed by the related
studies listed in Table 2.
PHASE II: BP TRANSPLANTING
INTRODUCTION OF CASE COMPANY
The case company. Company P, is one of the largest in
Europe and a top-rated electronics company worldwide. Its
employees are active in more than 60 countries in the areas of
lighting,
consumer
electronics,
domestic
appliances,
components, semiconductors, and medical systems.
As an international company. Company P had implemented
ERP systems in Europe and America. The sponsored
implementing team successfully set up the BP strategy to help
different branches to install their SAP ERP packages into their
working processes. Project RISE was established to implement
in phases this new way of working within the consumer product
divisions in the Asia Pacific Region, RISE stands for
RELIABLE, INFORMATIVE, SPEEDY and EFFICIENT,
which describes the expected end result of this project. Using
their previous experience and the powerful ERP solution
developed by software vendor SAP, the Project RISE team is
now building the tools that will help company P embrace a new
way of working and implement new business processes.
The core project team members of RISE are the
professional staff from each related department and assigned
responsible people as project managers to complete the job at
the specified time intervals. During ERP implementation, each
member should report only to the project manager instead of to
his or her original direct supervisor. However, the project
member will return to his or her position in the department when
the project is finished. There were also senior contracted
consultants, from neither the ERP system provider side nor a
consulting company, who joined the project team to assist with
the ERP implementation. Furthermore, a steering committee,
organized by high-level management in each subsidiary in
different countries, held monthly meetings for the following
functions:
1. Instruct project direction
2. Provide management support on budget and software
modification
3. Make decisions on company policies or strategies
4. Resolve bottleneck problems
5. Dispatch user representatives to assist the core project team
members in implementing ERP.
To insure success in implementation of ERP system in
Taiwan, the Taiwan RISE team leader of the case company is
formed to study whether the same CSF of parent company has
been applied to the Taiwan branch.
Summer 2004
The structure of this questionnaire was designed according
to the characteristics of company P and also the literature
published which uses the Likert Scale as a measurement method.
After the first run interview with the team members, most of the
members agreed that the CSFs should involve the ERP life cycle
structure. After consulting with the project leader, the model of
Markus and Tanis (9) is adopted in this study. The model is
developed from the ERP life cycle and composed primarily of
four aspects of primitive factors: “Preparation and
implementation processes,” “Characteristics of the ERP
System,” “Vendor Characteristics for the ERP System,” and
“Evaluation of ERP System Implementation.” All the factors
related to the CSFs of ERP implementation life cycle are
summarized. The Lawshe’s approach (16) is employed to justify
the content validity of each factor by a steering committee of
eight members. From the outcomes of the Lawshe’s screening
procedure, 39 questions were designed (Table 3) and were
divided into four structural frames, as follow.
1.
2.
3.
4.
Preparation and implementation processes: 14 questions
Characteristics of the ERP system: 9 questions
Vendor characteristics for the ERP system: 5 questions
Evaluation of ERP system implementation: 11 questions
The participants were asked to state their feeling of the
procedure for the entire ERP implementation life cycle. In this
survey, 35 persons responded to the questionnaire: Finance (16
persons). Warehouse (5 persons). Logistics and Distribution (6
persons), and Information Technology (8 persons). Those who
participated in the whole process of ERP implementation in
Company P filled in the questionnaire.
In this research, the content validity was established first
after the draft of the questionnaire was finished under the
direction of the general manager of Corporate IT Division of
Company P, Taiwan, In addition, four senior managers in the IT
department were invited to participate in a pilot test by
completing the questionnaire, and the contents of the
questionnaire were modified accordingly. The formal
investigation started immediately after the questionnaire was
finalized to get sufficient precision for the validity test.
This research obtained a high level of support from
Company P, and all questionnaires were retrieved. Sample data
were first measured with a certain level of reliability and
validity. Then, using descriptive statistics, the average and
standard deviation of the 35 respondents were measured, using
average ranking. Finally, we employed principle component
Journal of Computer Information Systems
103
analysis to explain the variance-covariance structure of a set of
variables through a few linear combinations of these variables.
Its general objectives are data reduction and interpretation
(Johnson et al,, 1997),
TABLE 2
References Related to Critical Success Factors of ERP Implementation
Critical success factors of ERP implementation
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In this study, we employed split-half reliability to examine
the equivalence for the questionnaire. Thus, we divided the
questionnaire into two separate parts and asked the same group
to complete them and then calculated the measured reliability by
Pearson r, using the scores of the two separate questionnaires.
The coefficient r of the split-half reliability for this questionnaire
is 0,93, which shows good internal equivalence. To measure
stability, the methodology of test-retest reliability was used. The
methodology of test-retest reliability is to apply repeatedly the
same test to the same sample group at different times to get the
related coefficient for each test score; which is called the
stability coefficient. There were eight persons selected to redo
the questionnaire one month after the initial testing to examine
the test-retest reliability. The results indicate a Pearson r
coefficient greater than 0.85 among the 35 samples, showing
high stability for the questionnaire.
The data listed in Tables 4 to 7 indicate the calculated
average acceptance value, standard deviation and sorting
sequence using questionnaire results which are under the four
categories, i.e. preparation and implementation processes.
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