Introduction:
There is a comparative case study presented below between two companies. One of which is a Chinese company named, NYE (is a state-owned enterprise),having over 58-year operational history. It has an annual revenue of 170 million RMB. The other one is a multinational electronics components manufacturing company, listed in fortune 500, conducts business mainly in the Asia Pacific region, and has an ERP system already implemented. The focus is on the company’s Hong Kong branch office, where the sales turnover rate is more than 400 million US dollars.
Task 1: Identifying Failure Types
Case 1: Why ERP post-implementation fails? Lessons learned from a failure case in china
Correspondence failure :
Correspondence failures occur when the design objectives stated in advance are not met(Aranyossy, M., Blaskovics, B. and Horváth, Á.A., 2018).
In this case article, the top management team of NYE realised that the legacy isolated systems and the traditional management mode had become inefficient in supporting their business needs. They expected ERP to enhance their core competitiveness and strengthen their position in the market. They discarded their legacy system and invested 1 million RMB in purchasing a new ERP system in 2003. However, the MD of NYE strongly felt that ERP was more like a fragmented system instead of an integrated one as different parts of the system were not integrated together. The Production Manager was disappointed with their ERP system as they had to use their legacy systems even after four years of implementing ERP. Additionally, the Financial Manager of NYE believed that the investment in ERP was a crucial failure as it drove the company into a more serious crisis. The data in ERP was unusable and was not accurate. Thus, from the management’s perspective, ERP was a failure as it did not meet their expectations.
Process Failure:
Process Failure occurs when the information system development process cannot produce a system at all. It can also be termed as process failure when the system faces vast overspending of time and money(Aranyossy, M., Blaskovics, B. and Horváth, Á.A., 2018)
In this case study, in 2003, the top management of the Chinese company invested almost 1 million RMB in purchasing a new ERP. The budget estimation was not appropriate because the new ERPs were complex, inflexible, and there were insufficient funds to enhance and maintain the system.
Interaction Failure:
A low level of system use and the related low measures of user attitude or satisfaction can be stated as Interaction failure.(Aranyossy, M., Blaskovics, B. and Horváth, Á.A., 2018)
During the implementation process, the IT Manager hardly involved system users. The ERP team failed to document the user requirements and purchased a set of standard ERP modules from the vendor. The ERP system was not properly designed and configured to support the users’ daily jobs, it was full of inadequate data as many important user requirements were not captured. Additionally, the users failed to understand that the ERP team had insufficient funds and was very difficult to make modifications to satisfy their needs. This lead to tension between the IT department and the users. Hence, the users were dissatisfied and resisted in using the ERP system as there was misalignment between ERP functionality and their needs.
The system users continued to use their traditional legacy systems to perform their daily jobs of storing and processing data. They entered the same input data into ERP only when they had time and hence the data in the ERP system was incomplete. They had to use telephones or talk in person to communicate about their work as they could not completely rely on ERP. They pretended to be willing to use ERP but did not make an attempt to adapt the new environment. Although the system users did not openly reject the ERP, they strongly resisted to use the new system to avoid personal risks.
As there was no pressure from the management towards the users and no ERP rules such as deducting the salary for user mistakes, users became careless while using the ERP system.
Case 3: Examining the ERP Implementation Process from a Failure Case
Correspondence failure:
During the chartering phase, there was an unrealistic expectation set by the top management. Top management assumed ERP would benefit in business process automation and would improve their competitive advantage. They largely focused on advantages of implementing an ERP system. The top managers did not consider the complexity and difficulties of implementing the system. This lead to the failure of the system. It is also evident that the Senior Logistics Manager found that the ERP system. He was unhappy that the consultants were not familiar with the new demand forecast function. He finally realized that he paid a high cost for this incorrectly installed function, misleading his management decisions and logistics planning.
Process Failure:
In this case article, the implementation schedule was set to 6 months by the top management, the project manager and the consultant. Unfortunately, six months was an insufficient amount of time for implementing the ERP systems. The top management of the Hong Kong company reserved 1.3 million US dollars for the whole ERP adoption. During the chartering phase, top management realized that resources are not sufficient. As the estimation of time and funds were not appropriate, it can be stated as a “Process Failure”.
Interaction failure:
In this case article, the company recruited ERP consultants from one of the big four accounting and consulting firms of India and Hong Kong branch office who implemented ERP software for the corporate India branch office for training the staff. There was a communication gap between the consultants and the internal staff as they could not understand the accent of the consultants. As a result, the middle and operational staff of the organization could not entirely understand the ERP concepts, functionality, and the use of the ERP system for daily operations. It was almost after two months of wasting the implementation period, they were able to understand the consultant’s accent. The project manager ignored this issue and did not take any actions to control this situation. The consultants failed to demonstrate professional skill in conducting Business Process Reengineering(BPR). The users did not realize the informal business process would have such a large impact on the ERP system.
There was a lack of internal and external ERP expertise in the organization. During the training, the consultants did not map the system functionalities with the business requirements. Also, the staff members did not have business analyst experience due to which the results of the mapping was very poor. The consultants did not have the knowledge of configuring the new released version of ERP. As a result, they did not train the members appropriately. Project members had to take support of other teams for the system configuration. Top management did not allocate extra human resource to cope with the increased work load. The staff members from the middle and operational level had to work rigorously and attend the training in ERP. Members had to work overnight to complete their daily jobs. The IT staff had to work overnight to solve the problems of ERP implementation phase. Due to high stress, two members decided to resign from their current position. Some of the accounting staff left the company due to high stress and work-overload after the training.
The Senior Logistics Manager found many bugs in the new release version of the ERP System and was realized that investing a huge amount on this misled his management decisions and logistics planning. Moreover, the consultants were unaware of the new demand forecast function.
The product master file was incorrectly entered due to lack of knowledge and skills. There was discrepancy in the product unit and sales price on the invoices. The customers and suppliers started raising their concerns about the invoices as thousands of Hong Kong dollars were erroneously written as millions of dollars.
Consultants left the company after the system “go live” date and as a result the members started trial-and-error approach to solve the problems in ERP during the shakedown phase.
Task 2: Identify Critical Failure Factors
The four most important critical failure factors observed for Case 1 are:
Overall Strategy : The quality of planning, estimation, monitoring, and requirements definition of the project (Feghali & Zbib,2007)
Intuitions and insights from personal IS experiences are used to access situations and courses of action(Martinsons, M.G. & Westwood, R.I.,1997). NYE was successful in previous IS adoption, but failed to handle the implementation and exploitation of ERP. When dealing with ERP issues, appropriate planning, thinking and brainstorming are the necessary factors. NYE was short of IT skilled staff and as a result redundant data of the system was not regularly purged, and technical bugs were not identified frequently. Previous IS experience is a critical factor to drive the success of ERP (Zhang et al., 2008; Leidner & Kayworth, 2006).A good practice to assign a senior executive or top manager, who also has extensive system and project knowledge, to be the ERP champion to avoid critical mistakes(Nah, Zuckweiler & Lee-Shang Lau, 2003). In the case of NYE, the IT Manager was the ERP Champion in NYE who had a programming background and was not concerned with the business aspects.
Senior management leadership : The support of senior management towards an IS organizational initiative(Feghali & Zbib, 2007).
Top managers play an important role to ERP innovation, as their attitudes will not only affect the flow of funds and information to the project, it also affects the subordinates’ view about the project (Gargeya, V.B. & Brady, C.,2005). In this case article, the top managers did not consider ERP as a long-term endeavour. They were inclined towards short-term thinking which led to the failure. In addition to this, they supported verbally and were not engaged in any of the ERP activities. There was no commitment from the top management towards the system and hence ERP was not adopted by the users in their daily jobs.
Rules, regulations and politics of the development environment : The degree to which the development environment adopts adequate and agreed upon rules and regulations to align itself with the IS’s ultimate environment(Feghali & Zbib, 2007).
The top managers failed to develop set of rigorous ERP policies and rules to ensure constant and proper use of the system in the long run by the users. In this case article, the users of NYE did not receive any pressure from the top management and hence they became careless. As a result, the ERP system became fragmented and unstable due to inadequate, incorrect and duplicate data. This resulted in poor ERP quality and the system failed subsequently.
User behaviour towards new IS : Users not willing to accept the IS(Feghali & Zbib, 2007).
In the case of NYE, the IT managers neither identified the needs of the users nor documented them at the early stage of implementation. There was no requirements analysis and specifications carried out which resulted in misalignments between the users and ERP functionality. The users failed to understand that modification in ERP according to their needs was difficult, complicated, expensive for the IT department. Moreover, the funds were insufficient to carry out the changes. As a result, the users were still using the traditional legacy systems to store and process data instead of the new ERP system due to the misalignment. The Financial manager stated that the users still use the traditional way of telephonic conversations or in-person talks for communication as they cannot rely on the ERP data . The users urged the IT department to eliminate the misalignments so that they can use the new system without any discomfort.
The four most important critical failure factors observed for Case 2 are:
Common understanding of organizational culture: Cultural difference between the end users of the IS and its developers(Feghali & Zbib, 2007)
The company recruited consultants from India. They could speak fluent English but with an Indian accent. The staff members from Hong Kong were unable to understand their Indian accent and consequently failed to understand the concepts of ERP, the functionality and use of the new system for their daily jobs. When they finally started understanding the accent it was already two months of the implementation period.
Consultant support : Consultant adequate support creates a reliable environment for upper management and employees to become familiar with a new IS(Feghali & Zbib, 2007)
The consultants failed to demonstrate the professional skill in conducting BPR during the training. They suggested ways to minimize the needs of BPR. They did not verify the configuration suitability and simple copied the configuration from Indian branch office. They did not map the system functionalities with the business requirements. As a result, the mapping was poor. The consultants were not familiar with the new forecast function. Even though the consultants were aware that the system was not reliable, they left the company a month after the ERP system went live. These reasons led to the failure of the ERP system.
Overall strategy : The quality of planning, estimation, monitoring, and requirements definition of the project (Feghali & Zbib, 2007)
The top management of this company had unrealistic expectations from the system. They did not consider the complexity of the system. They had less than 1.3 million US Dollars and realized that the funds were insufficient in the Chartering phase. It was also found that six months was not sufficient for implementing ERP. The system was not ready due to insufficient testing. The top management ignored the problems in testing, training and agreed that the system should go live. As a result, there were many bugs reported by the Senior Logistics Manager. This was one of the failure factors.
Workforce qualities: This indicator reflects workforce education, training quality and reliability(Feghali & Zbib, 2007)
The users were unclear about the ERP system due to poor training received from the consultants. The members had to depend on other team members for proper system configuration. All the mid-level and operational staff were overloaded with work as they had to attend the training and correspondingly complete their daily jobs. The ERP project team members started using trial and error approach to solve the problems in the shakedown phase. There were many problems with the sales invoices as the master file was incorrectly entered by the members with poor skills. Some of the staff resigned from their current position due to the stress after the training.
Task 3: Cross-Case Comparison
In both the case articles, a common failure factor was the overall strategy applied in implementing the new ERP system. Top management of both the companies viewed ERP as a silver bullet. Both the companies struggled with the complexity and cost of the system. Davenport(1998) indicated that companies have the biggest kind of problems that can lead to an outright disaster when they install an ERP without thinking through its full business implications. It is crucial that the top management is directly involved in planning and implementing the system.
It is evident in the case of NYE that the top management supported verbally and did not take part in any of the ERP implementation activities. They were merely dependent on the middle level staff. It is always crucial that the development of the ERP is controlled by management, else management may soon find itself under the control of the system(Davenport,1998). They were also reluctant to invest funds on ERP maintenance and enhancement. On the other side, the Hong Kong company recruited experienced senior IT manager and logistics manager to solve their problems after implementing ERP. The top management hired another team of consultants to reconfigure their system and train their members. Thus, for successful and effective ERP implementation the essential factors are leadership and commitment. (Al-Mashari, Al-Mudimigh & Zairi, 2003).
There were failure factors based on cultural dimension observed in both the companies. The users in NYE were still using the traditional legacy systems. There was a high degree of user-resistance for the new system in NYE. On the other side, the Hong Kong company’s system users were having a tough time with their training as they were unable to understand the accent of their consultants. Consequently, the users had insufficient knowledge about the system. The users of both these companies failed to realize their role in ERP and were behaving as passive functional experts (Soh, Kien & Tay-Yap, 2000).
In the case of Hong Kong Company, there were two factors based on the managerial dimension that led to the failure of the ERP system. It was crucial for the company to reengineer business processes to ‘fit’ the package(Sumner,2000). Consultants were not able to demonstrate a mastery of professional communication skills, good language capability, industrial knowledge, and business analytical skills, were not able to provide expertise concerning project planning, ERP systems and BPR during ERP implementation They could not act as change agents and fill the knowledge gaps(Ngi, Law, Wat). The other failure factor was insufficient knowledge about the system and the high workload faced by the users. This led to various issues in their ERP system.
A wide range of risks and challenges are always faced by companies when using, maintaining and enhancing their ERP systems in post-implementation(Peng & Nunes,2008).A unique failure factor observed in NYE was about the rules, regulations and policies to be developed when a new ERP system was being initiated. The NYE users were careless and committed various mistakes in ERP as the top management failed to take any strict actions against them.
Task 4: Recommendations
CASE1 – Chinese company NYE :
Management structure and strategy: The support from top management is required to establish strong project leadership(Sumner,2000).NYE was short of experienced and qualified staff. If I were the CIO of NYE, I would have identified and implemented strategies for reskilling the existing IT workforce and acquired external expertise through vendors and consultants when needed. As the ERP was fragmented, I would have restructured and followed an enterprise-wide design supporting data integration(Sumner,2000). I would have also acquired vendor support for capacity planning and upgrading. I would put in concentrated efforts before, after and during the project. NYE had invested 1.3 million dollars for ERP which was insufficient for the maintenance of ERP. Thus, I would have aligned my investments in IT with strategic business priorities. Being the CIO, I would have managed the company and behaved as a knowledgeable strategic partner (Willcocks,Sykes,2000). As the project teams designs and executes change management programmes, I would ensure that the system is successful and widely accepted by the users(Markus, Axline, Petrie, & Tanis, C,2000).
Communication with system users: I would have developed rules, regulations and policies for system users to use the new ERP system. NYE failed to develop rules and hence users continued using their legacy systems. This contributed in the failure of ERP system. Being the CIO, building strong relationships with my business executive peers is equally important for me. I would have also conducted regular audits and benchmarking exercise with the users to bring new ideas and innovation to make the organisation more adaptable to change programs and will also, provide the users with the opportunity to derive maximum benefits. (Al-Mashari, Al-Mudimigh & Zairi, 2003).
CASE 2 -Hong Kong company :
Consultant effectiveness : Hambrick and Mason (1984) suggest that organizational choices are a reflection of the top management’s values and cognitive bases. Consultants are facilitators of business process change. Consultants effectiveness was overlooked by the Hong Kong company. I would definitely recruit high quality, experienced consultants to train end-users. The end-users faced difficulties to understand the Indian accent of the consultants. I would have taken action to resolve the problems of cultural differences between the consultants and end-users for the new system to be successful. Education and training is needed to suit the users’ needs, as well as meeting the needs of the company(Woo,2007). I would have extensively researched and evaluated consultants working on ERP project.
Effective team and communication : It was evident that successful ERP implementation requires effective communication between consultants, project team members and operational staff. I would have contributed for good and frequent communication between the staff(Markus, Axline, Petrie & Tanis, 2000). I would have communicated with project team members and users for acquiring business requirements. The poor quality of BPR led to incorrect system configuration and hence conducting BPR and delivering professional training would also be an important factor for me.
Conclusion: Moreover, the majority of ERP problems identified are in fact organisational and management problems. This comparative study examines the critical role performed by the project team, including project manager, project team members, external consultant, operational users and top management. Their respective contributions to the failure of ERP implementation are examined and discussed.
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