About Red Zone Manoeuvres
and Unrealised Business Values
A comprehensive discussion about change and Change Management regarded
to the implementation of a computer-based Enterprise Resource Planning system
subject Industrial Psychology: Human Resources Information Systems
University of Port Elizabeth
author Sebastian Kunert
June 23rd, 2003
The preface ... page i
1 The Introduction ... page 01
2 The nature of an ERP systems ... page 02
3 The nature of change ... page 04
3.1 Towards a definition of change ... page 04
3.2 The relation between ERP implementation, change and change management ... page 06
3.3 Strategies and n-step models ... page 09
4 The impact on a company′s work force ... page 11
4.1 Resistance triggers in an ERP implementation process ... page 11
4.2 Sources of resistance ... page 12
4.3 Corporate culture ... page 13
4.4 Inter-links and convergence ... page 15
5 The impact on the board room ... page 17
6 The Conclusion ... page 19
7 The References ... page 22
Written according to the Technical Requirements stated by the American Psychology Association APA, 2000.
Revised by Rose van Rampelberg
Words: 6151 content
An ode to the books - The preface
"An ERP installation is likely to be the toughest installation your company will ever undertake." says Doug Campbell in his essay Integrated Solutions (2000). Ask managers who went through such a process and they will admit that you are right. Let me use that statement for a moment and turn it into: "An academical internet research is likely to be the toughest research a student will ever undertake." Ask students who ever tried to base an entire assignment on internet sources and they will agree.
Nothing seems to be more convenient and have more potential than the world wide web when it comes to gather information about any given topic, especially when those are new, up to date. Ask me a question and I will find the answer out there. Difficulties arise as soon as the research has to follow certain criteria. No matter if someone goes the Harvard, the APA or any other way to build up an research and to bring the used sources in order. The "net" is the ultimate pitfall. "Where is the problem?" might one ask. The problems occur when you compare the mechanisms of publishing and delivering between ordinary books and electronic medias.
Authenticity In principal, every fool can publish what ever he or she wants to be published. Put the right key words in your text and search engines will pick you out; let the content sound appropriately and no one will doubt you. The control mechanisms like those of an publisher are not applied necessarily. That makes it quite easy to pronounce something. In addition, no rules of referencing, quotation or dating are required in the internet. Who exactly said what and when? No one cares.
Isolation Usually, findings in the internet lack of framework, of supporting surroundings like mostly given in a book. In most cases, no chapters of related themes, that would provide the user with connections to the entire over-all topic and linked issues, is given. The article or what ever desired stands more or less loose on your screen, taken out of its complex "environment".
Access The more work, time and energy someone spent on a topic and its publication in the net the smaller the possibility of free access. That trend is especially pushed forward by the decrease of the advertising industry during the last three years, this is why a lot of free-access sites loose them their financial support. It is lying in the nature of academical and scientific research to be highly time and money consuming which does not contribute to download for free at all. As a typical result, nowadays, students find more and more advertising-sites that function as a gate keeper and invite you to explore the entire world of the desired topic - for a particular amount. Credit cards accepted!
Duration For how long do web sites last in the internet? In my particular case I tried to explore recommended sites given in some of my internet exposures. Many of them do not exists anymore. If the old library of Alexandria would not had been burnt down, someone would have access to knowledge more than 3000 years old, written on grease-proof paper. If I will try to reconstruct in about two or three years time what I wrote today I will definitely have some difficulties. As long as no "Library of Internet Sources" exists this medium is inappropriate to ensure source-availability in the long run.
What is the conclusion? The conclusion is that the internet is a nice source for back up and supporting information. But unjustified to let students base a complete assignment or at least the core elements on the internet. It produces work that is very likely to lack of comprehension and opens the gate to betray given standards.
Nevertheless, sometimes the "www" exposes little pearls like this entire overview on Change Management related to an ERP-implementation as a fancy power point presentation, waiting for download under:
1 The Introduction
If someone wants to buy a new Ford Mustang V8 with leather trim, automatic gear change and xenon headlights he or she can contact an ordinary deliverer. The car seller will offer various models from catalogues, tell what car is immediately available from stock, which features have to be added after the deliver and that it will take as longer time as longer the list of desired add-ons is and the more complicate the conditions of payment, credit or leasing are. Imagine the alternative way of e-commerce: A buyer hits a button to order his or her custom-configured Mustang, transmitting a slew of information directly to the dealer who will deliver it, the finance and insurance units who will underwrite it, the factory that will build it, the suppliers that provides its components, supplied to the doors within days.
This future scenario, created by Ford Motor Co. CEO Jack Nasser in the Business Week (2000), is already a part of our reality. "Business-to-business (B2B), e-commerce, or e-Procurement are an extension of what has been occurring for a number of years in business, namely the transmitting of orders and payments via electronic data interchange" (Cunningham, 2003). Among various factors, this is possible because a small computer-soft ware company in Walldorf / Germany, known as SAP, started 1972 to create the ultimate solution for the three major challenges for firms nowadays, namely Globalisation, Information and Technology (following Rosenfeld, 1999, Cascio, 2002, and Cunningham, 2003):
* Globalisation This "free movement of capital, goods, services, ideas, information, and people across national boundaries" (Cascio, 2002) leads nations into cross-national economic inter-dependencies and firms into an enormous and confusing patchwork of "islands of automatisation" (Sullivan, 2001). These islands, self managed and more or less independent production / sales units, become the more difficult to keep under the influence of the mother company the larger a firm is and the more the firm is separated into daughters and divisions.
* Information Ideas and information become more and more important. Facing the ongoing growth of the world′s economy and the increasingly shorter product lives cycles, it is obvious that success in future times depends increasingly on knowledge.
* Technology We cannot imagine a life without technology, especially in business. The length of and the speed within any business circle depends highly on electronic utilities. Automatisation of work processes, direct access to information, and necessary communication are possible because of it. As a result, technology, particularly the internet, facilitates the rapid diffusion of information and knowledge.
Over years corporations tried to cope with these tendencies by small changes within the old structures. But co-ordinating and managing huge amounts of information, remaining control on employees world-wide, remaining customer-focus, and finally the parallel run of several redundant and overlapping systems (Sullivan, 2001) becomes highly difficult and increasingly expensive. At the same time, computer based Enterprise Wide Systems become more and more powerful and sophisticated. The time seems to be ripe that large enterprises get out of their think-box and try something new: the implementation of an Enterprise Resources Planning (ERP) System.
In this assignment, I will examine the characteristics and effects of those ERP-systems related to the typical elements and reactions of change, completed by an overview on various n-step models.
2 The nature of an ERP-system
What Enterprise Resources Planning Systems basically do is handling with data: getting, storing and providing them, enterprise-wide! ERP-Systems can be defined shortly as "commercial software packages that enable the integration of transaction-oriented data and business processes throughout an organisation." (Sullivan, 2001). Cunningham (2001) provides us with a more comprehensive definition:
[An ERP-system] is an enterprise-wide integrated software solution that integrates the entire supply chain into an automated information infrastructure. Through its application an enterprise is able to integrate strategic decision support, data warehousing, planning and simulation, optimisation, forecasting, sales force automation, and customer relationship systems in a closed loop with core financial, logistic and HR systems. It enables real-time access to find, structure and edit information in addition to the provision of ready-to-use templates for strategy maps, modelling, and the seamless flow of information.
These "information backbones" (Campbell, 2000) collect, store, organise, manage, and direct data and information as well as automate and integrate business processes from Accounting, Logistics, Manufacturing, Marketing, Personnel, Suppliers and Customers in a single system, usually in real time. As a result, ERP-systems provide a seamless infoflow from the customer over the value creating chain till the suppliers and create a Just-In-Time situation between them (Rockefeller, 1998, Sullivan, 2001, Cunningham, 2003). They run on UNIX as well as on Windows, include a graphical interface, and can be used multi-lingual, multi-current and multi-company wide (Rockefeller, 1998).
Characteristically, they use "industry best practises", the best and most efficient way of accounting and managing different business, a kind of common standard, given by the IT vendor, what leads to a new form of inflexibility within the system. And they are evolving, rapidly! The newest versions of ERP-systems work internet-based. Such a web-enabled system provides one of the biggest advantages for global players in business: the access for the mother company to data for all daughter companies world-wide and, therefore, remaining control and realising syn-energy effects processes (Sullivan, 2001, Cunningham, 2003).
Usually, those ERP-packages are not in-house made but bought in from IT vendors. That creates a totally new relationship of interdependence between these both. Companies buying such an Enterprise Wide System (EWS) want to share the immense risks; at the same time vendors want to bind the customer on them to ensure further lucrative update and maintenance orders. The results are value-based contracts rather than conventional price-based contracts. The IT seller takes now, direct responsibility for the successful implementation of its soft ware packages (with Sullivan, 2001, Cunningham, 2003, v.d.Merwe, 2003).
3 The nature of change
3.1 Towards a definition of change
It is uncontentious, that change is necessary! "Those organisations which do not respond to challenges [...] facing them are likely to become dinosaurs in the evolution of modern society" (Rosenfeld, 1999). At a conceptual level, change is a matter of moving from one state (A) to another (A′), specifically, from a problem state to a solved state in a planned, orderly fashion. This essentially means to leave the current state, to occupy a new one and to have some structured and organised processes to get from one to the other (Nickols, 2000).
A change process consists usually of three major components. It is often at the beginning primary seen as a process focused How-problem. In this perspective the formulation of a problem is means-centred. In which way, by which tools and techniques can the solved state be reached? Another component is the content oriented What-side with the focus on the ends, on the final stage. What is tried to be accomplished? What are the areas of change? What changes are necessary? What indicators will signal success? Finally, there is the Why, stressing the context, particularly the inner (structure, corporate culture and politic within the firm) and the outer (the social, economic, political, and competitive environment) context. Ends and means are relative notions, not absolutes; that is, something is an end or a means only in relation to something else. Thus, ends-means relationships often have to be traced out before realistic final stages can be defined. Therefore, it is necessary to analyse what the problem of the company truly is, why it makes sense to shift from A to A′. To ask Why questions is not very popular, seen as being redundant. It is recommended in various literatures, to ask rather How than What questions (latest Thompson & McHugh, 2002). Despite, Why questions, in fact, help to get at the ultimate purposes of what a company is doing, in which ways it is doing it, why it is doing it that way and why it makes sense to change this way (Dawson, 1994, Pettigrew, 1999, Nickols, 2000).
The perspective on change can also vary, depending on what is particularly focused. Change can be seen as a horizontal and vertical transformation (Silverman, 1996). The horizontal dimension refers to an implementation itself and that it has technical consequences all over the company, depending on how many areas are affected. The vertical dimension refers to the effects on the people working in these affected areas. It emphasises the impact on the actual individual, on work teams and the entire social system, focusing thereby on the corporate culture and the underlying belief system.
According to Strebel (1998), there are 4 basic types of reactions to change, using the two dimensions Potential impact of change and Energy of response, like shown in Figure 1.
Potential impact of change
focus on security
focus on position
comfortable in the present
blocking by doing nothing
seek for accomplishments
chance / opportunity
passive Energy of response active
Figure 1: The 4 types of change reactions (adopted from Strebel, 1998)
This grouping results in Change Agents, Bystanders, Traditionalists, and Resistors. The first of them (and probably the most desirable) are Change Agents, employees who respond actively to change, who see it as an opportunity for development of their personality rather than a time consuming problem to be solved. These are usually young people in middle management positions, who like to step out ahead into action as soon as possible to make things happen. Bystanders in principal agree with the necessity of change, but lack of initiative. These are often local office managers who learned to dictate terms to clients and rules to subordinates, creating a barrier of scepticism about the possibility of viable change. Typically for them is to ask a lot of questions to get really convinced.
On the other side, there are first the Resistors, powerful high position managers, often for a long time part of the company, who have a lot to loose, who are used of playing power politics, locally ensured, and are afraid of change by nature. Next to them the Traditionalists, people who do not see the necessity to change, who usually feel comfortable in the given structure and lack of power. It is usual for them to "have too much to do with keeping the business running like usual". For each type ,Strebel offers special tactics how to handle with and finally convince them.
3.2 The relation between ERP-implementation, change and change management
"The term `change′ [...] should be synonymous with ERP," says Ed Koepfler, president, CEO of Intentia Americas. "When you put an ERP system into a corporation, you change every job in that corporation because you are changing the information flow. You are invading the entire organization, and people need to realize the impact it is going to have" (taken from Campbell, 2000). The implementation of an ERP-system can bee seen as one big problem, forcing the entire company to dramatically changes. Like shown in Figure 2, two fields of proficiency come together at this point, namely IT engineers and psychologists.
Re-engineering business processes is well known since the late nineteenth century, the time of Henry Ford and Frederick Taylor. They provide us with a quite mechanical view on change processes, where re-engineering is about re-arranging measurable elements that can be easily changed or improved. Solid change management seems not to be necessary, and where it was it had been conducted ad hoc, lacking frameworks and often support by higher management. While these people focus on business issues, on the other side, psychologists focus on forms of behaviour in business, especially in times of change with an eye on employee resistance. Both converged during the time when observers recognised, that one approach in isolation is unlikely to be successful. What emerged is known today as Change Management (Hiatt & Creasey).
Figure 2: The convergence of engineers and psychologists to change managers (taken from Hiatt & Creasey)
Change Management (CM) can be defined like the following (Hiatt & Creasey):
Change management is the process, tools and techniques to manage the people-side of business change to achieve the required business outcome, and to realize that business change effectively within the social infrastructure of the workplace.
Thus, the aim is to effectively, implement new methods and systems in an ongoing organisation. According to a research, conducted by Stein, Hawkin & Foster in 2003, CM is mainly about monitoring, managing and communicating, what obviously emphasises the human side in an implementation process.
The diagram below illustrates, that change in an IT implementation process happens on two dimensions: the business dimension (vertical axis) and the people dimension (horizontal axis). Successful change happens when both dimensions of change occur simultaneously. CM is essentially about synchronising these two processes in a manner that, at the end, the technological and the human side is ready to work like expected at the same time (Hall, 2002).
Figure 3: The relation between successful technical implementation and change management (taken from ProSci)
As broad the tasks of a Change Manager are as broad are the requirements. It seems to be consequent that such a person should be widely skilled and trained. The basics are (with Dawson, 1994, Schneider, 1999, Nickols, 2000, Cunningham, 2003):
* social skills: These are abilities to handle people differing in intelligence, gender, cultural backgrounds, frames of references, and attitudes toward life and work. Essentially, it is about proper communication and negotiating, empathy and listening abilities, motivation and translation.
* system skills: As stated earlier, it makes no sense to emphasis only one aspect of a change process. Therefore, IT knowledge is a prerequisite of every manager in this field. At this point, to organise an implementation is to arrange the IT components.
* political skills: Despite change managers are not really joining the political system of an organisation, they better be aware of how the hierarchies are build up and who has what extend of power.
* analytical skills: A lucid, rational, well-argued and comprehensive analysis of the corporation is the corner-stone of every change management approach. Often times the change manager has to initiate this analysis, because managers underestimate the impact of an ERP implementation.
* business skills: It is recommended to better understand, how the business works in which change is to be managed. It entails the understanding of finances, markets, marketing, products and development, customers, sales, buyings and employment policies.
* organisational skills: "Think global, act local!" is a famous head line. In fact, this is the most appropriate way how to organise and plan an implementation. The problems to reconcile various people world-wide working on one project simultaneously can be imagined.
3.3 Strategies and n-step models
Change management is still relative new, at least in the IT sector, characterised by trial and error methods (Hooks, 2001). Nevertheless, various strategies are available on the market. I want to mention the approach of Bennis, Benne and Chin (1969), who offer 3 different ways. The Rational-Empirical strategy is based on the assumption that people are, by nature, self-interested. Therefore, change should be based on proper communication and reward. The Power-Coercive strategy is based on the belief that people are typically compliant. That is why, transformation should be initiated by exercise of authority and the imposition of sanctions. The last, Normative-Reeducative strategy is based on picture of people as social beings, who basically follow cultural norms and values. Such an approach is conducted by redefining and reinterpreting these existing norms and values, and developing commitment to the new ones. Today, the last strategy seems to be the most popular, facing the fact that most change management sources focus on culture to make a change stick (Cunningham, 2003).
Hundreds of scientific research-reports (e.g. Hiatt & Creasey, Stein & Hawkin & Foster, 2003) and thousands of unsuccessful ERP-implementations have shown that change management is mainly about managing the "people side" of an implementation process. This "human factor" is often seen as being unscientific" and therefore felt to be unpredictable. No matter if someone uses the 1:3:5-rule ("For every kilojoule energy spend on technology, one has to spend three kilojoules in reshaping the organisational processes and five on people." Pretorius, 2002) or the 30:70-rule of thumb, like shown in Figure 4 - the purpose of recommended proportions of efforts is obvious. Correspondingly, the most n-step models focus on the same side.
Figure 4: The 30:70-rule of thumb about the proportions of spent efforts while an
implementation process (taken from )
To conduct a change process successfully the market of literature and training of change management offers a huge number of recipe-style guides called n-step models. The term n has been borrowed from mathematical notation where n is used to denote a number. The different models use different numbers of steps, using different schemas and emphasising different processes. Yet while the various step-guides differ, they are similar along a few key dimensions (Collins, 1998), which are:
* A pure rational analysis of organisational change
* A sequential approach to the planning and managing change
* A generally up-beat and prescriptive tone
* A tendency to oversimplification and plastic view on personality.
At the end of the day, all of them are more or less based on Kurt Lewin′s original Unfreezing-Moving-Refreezing-model, his adoption of the systems concept of homeostasis or dynamic stability (Lewin, 1951). Unfreezing means to bring an organisation out of its quasi-stationary equilibrium (the state of opposing driving and restraining forces compensating each other), the actual status quo; moving means to introduce the new conditions, the actual change to be affected; refreezing is about consolidation, to make the change stick.
The probably most popular of the n-step models, the ADKAR-model, is been used in Figure 3 to illustrate the phases of change for employers (ProSci), but there are dozens out there. The listing in the appendix tries to give a short overview and to demonstrate the similarity between them. In the following chapters the role of a change manager will be further examined and it will be shown, in which ways this person ca be a constructive and helpful part in a change process.
4 The impact on a company′s work force
4.1 resistance triggers in an ERP implementation process
When asked what companies should expect from an ERP installation, Scott Rich, vice president of marketing at Lilly Software, says: "People are resistant to change, people are resistant to change, people are resistant to change" (taken from Campbell, 2000). It seems to be the right of a company′s workforce to do so facing the fact that they have to carry the main burden. Several factors accumulate when it comes to an ERP implementation. First of all, an ERP-system just seems to be everywhere, changes a lot of ways how things are to be done (namely in an new electronic fashion) now. These new ways have to be learned, staff has to be trained how to use an ERP. Often employees are not dispensable at their current position what leads to only few training times, not seldom after work or on week ends. At the same time, the same employees have to work the double amount because the old, conventional system is run parallel to ensure data integrity and access in the first weeks of implementation (Hall, 2002, Cunningham, 2003).
Resistance becomes even worse, when implementation processes are poorly communicated, the staff feels not asked or in any kind involved. It would be foolish by the management to underestimate the powerful human inter-face between technology, especially data input, and business processes, the basic value creation (Hall, 2002). Nevertheless, higher management still tends to focus on the technical side of an implementation what usually leads to poor demonstration and persuasion, insufficient training and, as an result, in resistance. This, on the other hand, leads to higher employee turn over rates, productivity losses and an extended change period. And that all costs money, money that has to be re-earned by higher efficiency of an ERP-system (Cunningham, 2003). All the factors mentioned so far are still nothing more than resistance triggers. What underlies reluctance by a company′s workforce shall be examined next.
4.2 Sources of resistance
The change management literature gives a number or sources of resistance (Mead, 19 Rosenfeld, 1998, Forsyth, 1999, Nickols, 2000, Byars & Rue, 2000, Hiatt & Creasey). Worth to be mentioned are:
* People have a special frame of reference, depending highly on the work position. Their view on change necessity and extend is influenced by their position in the firm′s hierarchy (the higher the longer the time perspective) and the actual unit (therefore the context).
* Through the evolution in work philosophy from control, predictability and consistency to accountability, ownership and empowerment employees have been taught and reinforced to question critically and to analyse their tasks and activities, what, in return, makes it even harder to change something without consult the people affected
* During the time, a certain best-solution has emerged for each job and job holder. Most of them are going to be replaced now by the ERP-system with its own best-practice. This causes feelings of insecurity and disturbance. Furthermore, in the long history of some firms, rules and procedures were created after each new problem or contingency arose and accumulated to an entire set. This set of rules for yesterday′s problems often interfers with adoption to future challenges.
* Especially in "closed" organisations, the tolerance level for change is very low. Additionally, people are by nature psychological limited in their abilities to handle change. Finally, the spectrum of reasons for reluctance goes from vested interests to principal "no-sayers".
* According to J. H. Mead′s Symbolic Interactionism, people are by nature conservative. This lies in the strive to master their social and natural environment.
* Finally, group specific dynamics come into play, like group thinking and peer pressure.
According to Silverman (1996), the typical order of reactions to change are Obliviousness (the substantive and painful adjustments of the own belief system), Denial of significance, Self-deception and Narcoses (the numbing out themselves of people because the change is too much for them to assimilate). A change manager′s task here would be to turn this very human but interfering process around into a process of adoption, like suggested by Hall (2002). His change model is based on an evolutionary philosophy and is in some kind similar to the ADKAR-model. The idea is to increase the degree of involvement during the time. The basic steps are (in chronological order) Awareness, Knowledge, Evaluation, Legitimation, Trial, and finally Adoption. To foster this process, mangers should be aware of and protect zones of stability (Toffler, 1970, in Thompson & McHugh, 2002), areas with "patterns of relative constancy".
4.3 Corporate culture
To understand, why an ERP implementation so often fails and to see the underlying factor of resistance, it is necessary to enter the world of corporate culture for a certain while. This also helps to comprehend why it is important to make a change, once it is conducted, stick.
Culture in general is defined as "patterns of behaviour, learned through external adaptation and internal integration, considered to be correct and valid, shared by all members of a society." For most people, corporate culture is something mysterious, ambiguous, complex, often only said to exist. But it becomes visible as soon as already existing patterns are inconsistent with new values and cultural implications. The results are that people become, unpredictably defensive, withdrawn and distorted,, inhibiting corporate learning and finally preventing a successful implementation process. "While culture is a systemic phenomenon, its primary architects are those at the very top" (Schein, 1992), what opens the possibility to conduct a change process top down.
According to Schein (1992), culture is built up by three levels like shown in Figure 6. The first level, artefacts, includes observable daily activities, rituals, even jargon and office layouts what characterises tangible life within an organisation. This layer symbolises the manifestation of culture. The second level, values and beliefs, includes an organisation′s espoused moral, used to evaluate as exemplary or just ineffective. These values are usually highly visible, often prominently posted. The role of values is to drive action strategies within the context of key basic assumptions - a simple guideline for appropriate behaviour. The third level, basic assumptions, includes the mental models about reality, the view of fundamental truths about people and the entire world. An example could be: "People are by nature trustworth!". It is assumed to be beneath awareness but frame and constrain our cognitive field used, among other things, for problem solving.
Especially in times of stress and uncertainty hidden alternate values come into action, which are rarely acknowledged nor can be examined directly (Argyris & Schoen, 1978). An Example could be: "Win, do not lose!" Characteristically, those patterns often interfere with the espoused values, even override them and, thereby, undermine an organisational effectiveness. The whole middle layer is quasi substituted by the "stress version".
Figure 6: Layers of corporate culture (adapted from Schein, 1992)
What usually happens now internally can be described as a cybernetic action system, a looping sequence of error-correction which continues as a function of decisions within the system to influence changing conditions relevant to the system goal like shown in Figure 7. The Values and goals to be followed depend thereby on the situation.
Figure 7: The schematic of an internal cybernetic system
This model can be easily conducted for an ERP implementation situation. What can happen is, facing a unfamiliar way to enter and receive data, that a person keeps on doing his or her business as usual, probably in paper form, because the new situation is received to be threatening (everything takes the double amount of time * one feels seen to be ineffective * one feels threatened * the stress-value "At all costs, avoid falling behind" comes into action * the old and "effective" way is conducted).
The crucial point is, those patterns are not accidental but skilfully designed to allow us to enact the same routine over and over in similar situations, through out the time constantly reinforced. As long as the defensive behaviours is effective in realising corporate values and goals driving it that is seen as something desirable. here lies the reason for what Argyis called "skilled incompetence". At the same time, this is the starting point for change managers. They should create goodwill and motivation to stand the times of uncertainty and reduced effectiveness; they should create awareness underlying values and introduce new ones to overcome those undermining patterns; they should help participants to internalise them through role plays and case works.
4.4 Inter-links and convergence
Two more typical effects arising from the characteristics of an ERP-system shall be shortly examined. Both are results of the fact that such an system is implemented enterprise wide what basically means, all staff members have access to it and all share the same information.
The first result concerns data integrity. So far, all units of a firm had more or less their own stock of information, synchronised from time to time with other units and managed in own manners. Now all these departments are inter-linked and work with the same the ERP-system. That saves time, money and even jobs, because the same data do not have to be entered, updated, delivered and synchronised by each unit but is done once and for all. Correspondingly, data integrity becomes crucial, because the control mechanisms occurring automatically through transmitting data no longer apply. Once it is stored everyone, enterprise wide, uses it like it is. The same point is stressed by concerning data security. It is much easier to cause huge effects by changing or deleting data (Cunningham, 2003).
Additionally, such an implementation goes against the mantra of decentralisation, occurring through out the 70′s and 80′s till nowadays (Schneider, 1999). This compartmentalisation, "the slicing and dicing of functions into ever smaller and more controllable entities" (Silverman, 1996) effected hundreds of isolates needed to be incorporated so that they can be reconstituted into a larger whole, a process which is increasingly expensive (like already stated earlier). This vanish of natural seeming boundaries between several corporate units forces employees to consider themselves as corporate members rather than unit members (Cunningham, 2003).
Last but not least, employees face new job requirements. Systemic thinking and computer literacy are necessities now given the electronic characteristics of an ERP-system (Cunningham, 2003). The future users understand their influence on the entire system, "are informed and competent facilitators of integrated business processes, who have sufficient process and technical knowledge and trust and authority to make integrated process changes as, and, when the demands of a dynamic business environment require them" (Hall, 2003). Additionally, these requirements are potential to be another social dividing factor between first world and third world countries (Cunningham, 2003).
5 The impact on the board
There are several problems facing corporate managers when it comes to ERP implementations. Most of them occur because an ERP-system is seen as a simple add-on like many before and the impact, as a result, is often underestimated. At the same time, success is highly difficult to estimate. Facing the tremendous failure numbers stated in the business literature those implementations got reverently called Red Zone Manoeuvres.
The biggest threat among board room members when it comes to ERP-system implementations are Unrealised Business Values of two kinds. The first of them concerns the Return of Investment (basically the ration between invested and earned money) and, also, the time it takes to recover the investment. The actual problem is to measure this ROI adequately and to define success of an ERP implementation. To do that managers must define the link between sophisticated data in- and output and business success. Because, nothing else than improved data managing an ERP-system provides them. To make money out of it is up to the board room and if the system is used as a what it is: a tool for sound decision making. This fact brings us back to the original question: In which way does an ERP-system fit in the corporate over-all business strategy. An analyse of the actual business requirements is necessary, contenting international strategy, financial reporting, likely future changes of the entire organisation, relevant markets and then, finally, the definition of gaps between the capabilities of an ERP and those requirements (with Rockefeller, 1998, Hall, 2002, Cunningham, 2003).
However, it is possible to correlate IT spending with productivity adequately. The only problem is that conservative financial and accounting-based ratios - productivity, turn over rate, business profitability, customer value (see calculation 1) - mostly fail to prove a significant amount of gained money earned by an ERP. That is the cause for the IT-related "productivity paradox": IT does something, it takes part in the creation of profit, but it is not visible in the actual ROI measures (George & Siew). This lies partly in the character of information systems as doing typical back-up work. Consequently, success is always moderated by the performance of other, real value creating systems.
Calculation 1: The general calculation of the Return of Investment ratio.
To solve this paradox, Mahmood & Mann (1993) offer a correlation between these variables grouped and the IT-investment (this useful approach follows the among statistics well known Mehl-paradox, the fact that several predictor variables in isolation can not be significant correlated to a predicted one but become significant when be grouped). Another way is suggested by Bharadwaj, Bharadwaj & Konsynski (1999) who measured ERP success by Tobin′s q (see calculation2) what leads to significant results, indicating that ERP contributes to a firm′s performance potential.
Calculation 2: A firm′s value measured by Tobin′s q.
An alternative measure offers Straussman (taken from Convergence, 2003b), when he calculates the information productivity like shown in Calculation 3.
Calculation 3: The measure of information productivity according to Straussman.
It might be relaxing that Gupta & Capen (1996) found in their research no significant correlation between success In ERP implementations and the actual size of the company and the amount of spent money. In other words, it plays no role how big the company is or how much money a firm has at its disposal. But, at the same time, Tam (1998) states that ERP-investments are usually not valued by the stock market.
The second kind of Unrealised Business Values concerns the elimination of process innovation-based competitive advantages. As soon as all competitors are using the same system, the competitive advantage out of vanishes and ERPs become an end in itself (Sullivan, 2001).
To support an IT-ROI in general, George & Siew found critical factors that will help ensure successful use of an ERP:
* top management commitment to IT
* previous firm experience with IT
* user satisfaction with systems
* absence of turbulence in the political and economic environment within the firm
* customer focus rather than cost-saving methods
* matching complementary assets as infrastructure and human capital with IT
* empowerment, what gives more decision making power to line workers.
Cunningham (2003) suggests to leave the ROI thinking box and to consider other, rather soft factors. These can be employee′s work satisfaction, data accuracy, system maintenance costs and manipulation prevention. The crux with this approach is that an improvement on these fields should finally contribute to the financial results as well. But it helps to keep the patience to wait for future returns when research proves an increase in these fields.
Finally, managers have to decide if they want to conduct the ERP components implementation all at once as a big-bang or step-by-step. Both approaches have their very own charm. To implement everything at the same time causes trouble just for a certain, predictable while and the company is not confronted with change for years. Furthermore, it helps to see the whole final extend of the implementation and saves money, because consultants only have to be paid once. On the other side, the big-bang approach requires a huge amount of change capabilities by the staff members and can eventually overwhelm the entire company. There lies the advantage of the step-by-step approach, when the whole implementation process is divided in smaller manageable parts.
6 The Conclusion
Dutch Holland, asked why the failure rate in ERP implementations are that high, once stated: "[ERPs are] oversold and underestimated: oversold on what the technology could potentially do for a company from a business point of view, underestimated on the degree of difficulty of getting that technology implemented and integrated into day-to-day operations" (taken from Convergence, 2003a). This truth cannot be ignored. Nevertheless, an ERP-system makes sense, especially when it is a part of the corporate′s over-all objectives and when it is well incorporated in a firm′s other business systems and day-to-day activities.
When it comes to the immense failure statistics, one reason lies in the fact, that these systems are still quite young and highly pushed forward in their evolution. Let me use a comparison with VCRs for a moment. Video players had been totally new in the late 70s, caused a lot of trouble and had been very demanding for its owners. The technique had not been finally developed to its full potential and construction mistakes where omnipresent. Nowadays, given the same problems at DVD players video is the save alternative: a little bit old fashioned but dependable. Everything takes its time! There is no reason, why ERP-systems should be not affected. A complicating factor is the purpose of an ERP as the "main drive" of a company, what makes it highly influential. The problem of data integrity can be easily exaggerated to a general problem: one error in the system has big effects, describable in chaos-theoretical terms.
However, an ERP-system is worth to be implemented. Well used it gives enterprises a huge advantage which finally predominates the costs of the change process. Given the immense experience of other, failed and succeeded implementations it is quite easy to focus on the risks and likely mistakes to avoid them and get the most out of it.
Furthermore, large enterprises, especially global players have no other chance than using the capabilities of an ERP. There is no other way to ensure customer satisfaction, employee control or Just-in-Time supply in times of Globalisation. This internationalisation-trend is not finished yet at all! Huge new potential markets and production areas still wait to be discovered. The problems, on the other hand, are hardly manageable already now. They are more likely to become even worse than to be solved. ERP-systems have the potential to manage these tasks even in future time′s dimensions.
Finally, experts, managers and business commentators unusually seem to agree that the future of making money lies undoubted in the internet. The technical requirements of that particular way of selling are easily met by ERP-systems. It enables a company to deliver the necessary information and data from the customer directly to all suppliers which, in return, gives them the opportunity to concentrate on what they can best: running their own business, for example producing desirable cars.
7 The References
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The following tables show a short overview on recommended n-step models concerning the implementation of an ERP-system in comparison to Lewin′s Unfreezing-Moving-Refreezing - model. It is obvious that the different guides focus on different phases in the changing process. The model of Rockefeller is the only one which concentrates on the technical side rather than the human side. Collin′s model is meant to be a kind of simplified general-steps model, illustrating the similarity between all of them.
Confirm top-level support
Use project management approach
Table A1: It compares the n-step model of Lewin, Ross, Holland, ProSci and
Build a guiding team
Create an action plan
Configuration of Master data
Configuration of Transaction data
Design/Test of Data Interfaces
Design/Test of Printed Forms
Review Financial Reporting
Test the Configuration
Communicate for buy-in
Train the users
Create short term wins
Don′t let up
Load Data and Start
Make the change stick
Table A2: It compares the n-step models of Lewin, Rockefeller and Cunningham.