Questions:
The Case Study
A Houston-based Waste Management Company (WMC) signed a purchase agreement for a new revenue management system (ERP) in October 2005 with a well-known ERP vendor SAP AG. In 2006, WMC filed a case against the ERP vendor SAP for a complete failure of a $100 million ERP software implementation. It also alleged that SAP executives participated in a fraudulent sales scheme by describing the Waste and Recycling version of its ERP application as “tested, working solution” and this product would be delivered within 18 months from the purchase date. However, SAP fired back, claiming that Waste Management violated its contractual agreement with SAP by “failing to timely and accurately define its business requirements” and not providing “sufficient, knowledgeable, decision-empowered users and managers” to work on the project.
WMC claimed it suffered significant damages, including more than US$100 million it spent on the project, as well as more than $350 million for benefits it would have gained if the software had worked as intended. In the end, SAP made a one-time cash payment to Waste Management under the confidential settlement’s terms.
In general ERP vendors provide basic software that can be modified to suit existing business processes “OR” modify their own business processes to suit the proposed system. Claims made by WMC indicate that they were expecting SAP to deliver already developed product without realising that it was a prototype. As we are not clear about the facts, it can be assumed that SAP was planning to develop a customised solution to meet WMC’s needs, but failed to deliver a customised solution within 18 months, due to lack of support and information about current business practices at WMC.
Task
You have been asked to prepare a report identifying the causes of failure and recommendations to adopt a new ERP system.
You need to thoroughly research, mount and justify proposed solutions for successful implementation of an ERP system. Your report should include discussion and arguments with suitable evidence about the following:
From the inception of ERP or Enterprise Resource Planning by businesses, organizations face different dilemmas and problems. It is true that integration of business processes with ERP makes the business process faster, brings more revenue to the business. At the same time, ERP implementation failure can result into situations like the same in case of WMC and SAP AG implementation case. Where the implementation failed due to wrong selection of ERP, lack of understanding about ERP, prototyping, lack of communication and commitment from top level management etc. These type of situations is not intended for any organization. One of the difficult thing to decide about ERP implementation are the customizations.
Business processes differs from one organization to another, as ERP is closely related to business processes, so the customization of the ERP solution will vary from one ERP solution to another. And sometimes organization choose ‘vanilla’ implementation that is ERP implementation without customization. But this is not en efficient process.
Another path to avoid customization of ERP solution is to customization the business process according to ERP implementation. But it adds more complexity, more manitance cost, lesser flexibility etc.
In this presentation, customization of ERP solution according to business process will be discussed.
Before customizing an ERP implementation it needs to understand what an ERP solution is. ERP systems are modular, larger and complex systems that integrates the business processes like SCM, HR, Accounts, CRM etc. and many more. But these are mostly packaged solution. And it will suffer the issues that are true for any packaged solution. Packages solution suffer from “uncertainty about package modification time and cost, vender viability, and the ability of the package to meet the user needs” (Gross & Ginzberg, 1984) now, it needs customization to meets the user needs. To reach into the business functions of an organization, staying within the scope of ERP systems, organizations will either change its business process or change the ERP solution whatever there is a mismatch between the requirement of the organization and the offering from the ERP solution.
There are different types of situation when the cases arrives that the ERP solution needs customization. There are different types of strategic alignment with ERP customization. There have been extensive studies on finding the critical factors that directs to ERP implementation success and are considered to be the preferable ways for software customization. Still there may be situation of mismatch between strategic alignment and customization. Studies says that it needs modification and customization of ERP systems to meet the requirements of the organization. (Light, 2005)
The deciding factors behind customization of ERP solution will include,
1. Factors related to the product
For any organization customers is a big factor. Preferences are given on customers’ requirement and preferences. But it is sometimes hard to predict the customer responses before implementation of the ERP. Consultants are required to decide the functionalities needed by the customer from the ERP system and listing those down. Then they priorities the lists and make the customization based on the list.
2. Internal and technical factors
Customization should be accepted such that it does not affect the structure and interdependencies of the modules much.
3. Benefits from customization
The measurement of benefits from customization is needed to be evaluated. The evaluation should be realistic enough.
There are two types of customizations made to the ERP solutions for bridging the gap between ERP solution and business process. Those are consistency customizations and strategic customization. In consistency customization, the customizations are made to the ERP solution to achieve consistency among the business process and the ERP solution. These kid of customization are required for fitting the ERP solution into the business. For example, there may be a requirement where the reports generated for the organizations needs to have some specific types of headers and footers. Addition of that to the reporting tool of the ERP solution is a type of consistency customization.
On the other hand strategic customization are customization made to the ERP solution to achieve strategic alignment with the business processes of the organization. This is an extension of alignment of the business processes along with the information system strategies of the organization.
Customization of ERP solution can be based on the technology and technicalities behind the ERP customization. (Luo & Strong, 2004). The processes undertaken for technical customization may be,
4. Selection of Modules
In this case, an organization selects the modules of the ERP solution that needs customization for getting fitted into the business process. The management and IT department decides on the customization required for this case. In terms of business benefits, more customization of modules will make the modules more suited and aligned with the business process. But the risk is the interrelationships among the modules may get affected. For an ERP system, that is highly modular and integrated around the modules of an ERP solution, it can lead to problematic ERP solution. The costs, changes etc. also needed to be considered.
5. Customization of Table Configurations
These kind of customizations are done to ERP systems for tailoring it according to the business process. It needs understanding of the essence of each customization and configuration options available to the tables in the ERP solution. Also it needs to understand the consequences of wrong configurations. Usually there are different kind of large number of tables in an ERP solution. Thus the task of configuring the tables may turn up to be time consuming task. Maintaining the interdependencies among the tables and modules is very much needed in this case.
6. Modification of code
Customization of ERP system may need to modify the ‘code’ of the system. Thus it will take programming tasks to complete. An example is customizing the interfaces of the system.
The advantages from customization of ERP solution will be, (Aslam, et al., 2012)
1. An ERP solutions integrates business process and build a centralized control over the business processes in the organization. Integration of business processes makes the processes more collaborative, faster, and compatible and the redundancy among the processes are reduced.
2. Customization helps to rule out the unnecessary or irrelevant modules from the solution and may add features that are more close to the business. Thus the integration of IT with business process will be enhanced. The business will be able to utilize the benefits of information technology more than before.
3. ustomization of ERP according to the business process is less costly than changing the business process to get aligned with the ERP solution.
4. Business process reengineering need to change the business process, the structure or organization, organizational culture, business strategies etc. the risks of such changes are more complex, risky and time consuming than changing ERP solution along with the business process. (Grabot, et al., 2008)
5. Recent ERP vendors provide enough support for ERP customization by offering wide range of plug ins, modules, support etc. thus customization of ERP in not that much complex now a days. Also there are vendors that provide different ERP solution for specific industries. Choosing some industry specific solution related to the business will help in reducing the degree of customization to some degree.
6. In case of custom ERP solution, it is built based on the requirements of the business process, thus it will be able to represent the business in better way. The business will be run in more smoothly.
7. The interfaces and layout can be customized as per the users’ requirement and choices. Thus it will make the interface more user friendly.
8. It will help to control visibility and access over the system and data in a better way. Organization will be able to implement such features in a better way.
9. It will not require any change in organizational structure or culture, thus the resistance from user will be lesser. And it will help in more user participation, thus the system will be utilized in a better way.
There are some far reaching consequences of these ERP implementations. (Grabski, et al., 2000) Some factors under this consideration are,
1. Customization of ERP is a part the organizational effort given the project of ERP implementation. There will be significant investment of cost, time and effort behind customization of ERP.
2. Customization may end up in addition of new bugs in the ERP system. Customization changes the software provided by vendor and these bugs stems out from the customization hence, vendor will not be responsible for these bugs. The development process of ERP implementation can be delayed for these bugs. Even sometimes it can lead to ERP failures.
3. Customization will increase the complexity of the ERP implementation to some more degree.
4. Manitance and upgrades can also be dramatic and complex. Vendors may not support up gradation of customization solutions. In that case it may need hiring experts for that purpose.
To conclude the discussion, the bottom line of any ERP implementation will be understanding the requirements, selecting the right ERP solution, deciding the customization only as much as needed.
References
Aslam, U., Coombs, C. R. & Doherty, N. F., 2012. Benefits Realisation from ERP systems : The Role of Customisation. ECIS.
Grabot, B., 2008. Process Alignment or ERP Customisation. ERP Systems and Organisational Change, pp. 139-156.
Grabot, B., Mayère, A. & Bazet, I., 2008. ERP Systems and Organisational Change. s.l.:Springer .
Grabski, S. V., Leech, S. A. & Lu, B., 2000. Risks and Controls in the Implementation of ERP Systems. The International Journal of Digital Accounting Research, pp. 47-68.
Gross & Ginzberg, 1984. Enterprise Information Systems: Concepts, Methodologies, Tools and Applications. s.l.:Idea Group Inc (IGI).
Harwood, S., 2003. ERP: The Implementation Cycle. s.l.:Butterworth-Heinemann.
Leon, A., 2008. ERP Demystified. s.l.:McGraw-Hill.
Light, B., 2005. Going beyond ‘misfit’ as a reason for ERP package customisation. Current trends in ERP implementations and utilisation, p. 606–619.
Luo, W. & Strong, D., 2004. Framework for Evaluating ERP Implementation Choice. IEEE Transactions on Engineering and Management, pp. 322-333.
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