The Impact of ERP on the Effectiveness of Business Process Management

Table of Contents

1. Introduction

2. Literature Review
2.1 Enterprise Resource Planning (ERP)
2.1.1 ERP Definition
2.1.2 ERP Evolution and History
2.1.3 ERP functionalities
2.1.4 ERP Implementation
2.1.4.1 Implementation Strategies
2.1.4.2 Implementation Procedure
2.1.4.3 Implementation Challenges
2.1.5 ERP Benefits
2.1.6. ERP Model
2.1.6.1 Cloud ERP
2.1.6.1.1 Definition and Function
2.1.6.1.2 Cloud ERP Types
2.2 Business Process Management (BPM)
2.2.1 BPM Definition
2.2.2 BPM Methodologies
2.2.2.1 Construction of Business Process Architecture
2.2.2.2 Choosing the best methodology and the ten principles
2.2.3 The BPM map
2.2.3.1 Processes, activities and tasks
2.2.3.2 The Process Classification Framework
2.2.4 BPM Assessment
2.2.4.1 Maturity Assessment
2.2.4.2 Life Cycle Assessment
2.3 The Impact of ERP on BPM
2.3.1 Investing in ERP for BPM Improvement
2.3.1.1 ERP Implementation
2.3.1.2 Business processes re-engineering and system integration
2.3.2 Benefits and risks of ERP on BPM
2.3.2.1 ERP effectiveness and efficiency
2.3.2.2 Assessing risks
2.4 Research Gap

3. Methodology
Method and Description
Instrument
Sampling
Procedures

4. References

5. Appendix

1. Introduction

Enterprise Resource Planning (ERP) is a software that consists of a group of applications and tools that aim mainly to monitor business functions, operations and processes across an organization, providing reliable information to different units of the company such as finance and accounting, sales and distribution, human resources and others (Štemberger et al. 2009: 89). In addition, with the daily evolution of information technology, the ERP system has been progressing and building itself for the last two decades, until it took the shape we all know now. (Huang and Yasuda 2016: 2).

On the other hand, Business Process Management (BPM) can be identified as the discipline that reaches for the maximum control and management of organizational structure and format of the business processes, which eventually leads to enhanced business process management. (Lehnert et al. 2017: 275)

This research paper is exploring the impact of ERP on the effectiveness of business process management by evaluating ERP potential development on business processes and how automation provided by ERP would affect these processes. In addition, this study aims to demonstrate the functionalities of ERP, and their possible positive effect the system may have on business performance, even though some studies argue that not all ERP implementation project succeed. (Fernandez et al. 32: 2017).

The paper is organized as follows: the first section will discuss ERP's definition, evolution and history, functionalities, the implementation stages of ERP systems, benefits of ERP and the cloud ERP and its types. The second section will discuss the definition of business processes management. In addition, the BPM methodologies including business process architecture, how to make the right choice for methodology and process classification framework. The last section will discuss and explore how investing in ERP can improve BPM by explaining the budget, time and plan needed for ERP systems and business processes re-engineering and system integration to match with the ERP systems. Also this section includes benefits and risks of ERP on BPM by evaluating ERP effectiveness and efficiency and assessing risks.

2. Literature Review

2.1 Enterprise Resource Planning (ERP)

2.1.1 ERP Definition

In the past decade, the IT evolution has been rising exponentially with evident effect on an organization’s operations, proving its vitality in serving business needs and enhancing business performance. As more organizations around the world started realizing the importance of IT while witnessing its rates of success, the higher the demand has risen for ERP systems. (Silva and Oliviera, 2015: 197)

Enterprise Resource Planning (ERP) is a fully capable system comprised of integrated applications that to manage daily business operations such as accounting, finance, human resources and manufacturing. Moreover, ERP systems link together a plethora of business processes and enable the flow of data between them. As a result, using ERP systems create a more collaborative, efficient and inclusive environment among the organization’s units, which greatly helps in streamlining and facilitating decision-making. (Scrutu and Lupu, 2016: 145,153).

2.1.2 ERP Evolution and History

ERP systems are considered one of the most innovative advances in information technology since the 1990s and until this day. (Eid and Abbas, 2017: 530). It started evolving as the interest in the transformation from functional to process based IT infrastructure became a focal point for organizations, it lead to an increased preference and demand for ERP systems. Traditionally, ERP systems were first implemented by capital-intensive industries, however most, if not all, industries nowadays operate their business functions using ERP. (Al-Mashari, 2002: 165).

Historically, ERP’s roots date to the 1960s when most organizations designed, developed and implemented centralized computing systems but were also on the search for better performing methods, which lead to creation of MRP in the 1970s. The products and parts planning was the main concept of material requirements planning (MRP) systems according to planning priorities and schedules. (Scrutu and Lupu, 2016: 149). In the 1980s, MRP(II) was introduced as an extension and upgrade of MRP, including more organizational functions such as sales and order management, marketing, purchasing, warehouse management, financial and managerial accounting and human resource management. (Kumar and Hillegersberg, 2000: 24)

By the 1990s, ERP took its full shape that we know now, forcing its way into the business world, supported by the power of providing a system that integrates multiple, if not all, business processes into a single application that is accessible across an entire organization. This breakthrough of ERP systems was based on technological concepts of MRP and MRP(II), which allowed ERP to be more inclusive of more business functions and operations such as manufacturing, distribution, accounting, human resource management, project management, inventory management, service and maintenance, and transportation, providing accessibility, visibility and consistency across the enterprise. (Rashid et al, 2002: 4).

Afterwards, ERP further evolved into extended-ERP systems that offer traditional ERP functionalities strengthened by business capabilities such as supplier relationship and customer relationship management. (Kumar and Hillegersberg, 2000: 24)

2.1.3 ERP functionalities

As mentioned above, the key success factor of ERP is that it covers a variety of essential functions that ties every department of an organization together. As a result, the primary features and functionalities of ERP systems lie in providing real-time view of data and integration of business processes. The company-wide access of data that ERP offers helps greatly in increasing the reliability of information and reducing redundancy. (Tsai et al, 2012: 492).

For an ERP system to be proficient, it has to be comprised of a number of features and characteristics that supports the system to reach its highest performing rates. These characteristics include the modular design of the ERP system, that incorporates various distinct business modules such as manufacturing, financial, accounting and distribution, with each module taking care of the functions of a particular section or department of an organization. Having a common centralized database management system is a very important characteristic of a good ERP system, as all the data is entered and store only once and then used by all departments and modules simultaneously. Providing a smooth information and data flow within the organization and among the modules, which work in real-time with online and batch-processing capabilities, is another characteristic that most companies consider before implementing ERP, as it enlarges the operational transparency. (Rashid, Hossain and Patrick, 2002: 4). Moreover, another vital characteristic of ERP systems is that they provide a lot of flexibility to be prepared to respond to the ever-changing needs of the organization and the industry. (Uwizeyemungu and Raymond, 2005: 72, 73).

2.1.4 ERP Implementation

2.1.4.1 Implementation Strategies

As the core of implementing a new ERP system in an organization is to tie its units together for more valuable business processes and performance, it is vital that the business owners possess an in-depth understanding and profound comprehension of the inners of their organization. (Scrutu and Lupu, 2016: 150). Furthermore, the implementation planning and process establish the benefits that a company can acquire from the ERP system, and draw the map of change required for the business processes and operations to align with the new system. (Karimi et al, 2007: 104).

Firstly, two of ERP implementation strategies types that are based on the concept of divisibility, are known as sequential or incremental implementations, which are furtherly partitioned based on the organization as a whole, its functions, departments, locations, etc. (Karimi et al, 2007: 104). Moreover, organizations sometimes consider another ERP implementation strategy, called “Big-Bang”, that requires the company to stop its functions and replace all legacy systems with the new ERP system at one single point. (Ali and Miller 2017:677).

However, the most preferred strategy by organizations when implementing a new ERP system is the “Franchising” method, as it involves a progressive replacement of legacy systems, where each department in the organization gets its tailored system, while coupling similar processes. As a result, companies with diverse business processes and functions benefit marginally from the “Franchising” implementation method, as it provides operating and integration flexibility to these companies. (Silva and Oliviera, 2015: 199).

2.1.4.2 Implementation Procedure

When an organization decides on implementing an ERP system, it goes through three main stages: pre-implementation, execution and post implementation. (Silva and Oliviera, 2015: 199)

First, the implementation strategy and method selection process and planning have an undeviating effect on the overall process of implementing an ERP system, which makes the pre-implementation phase a critical point in such process. In addition, the pre-implementation phase gives a hint about the behavioral attitudes towards the new system from all the organizational entities, such as resistance or involvement. Moreover, activities such as technology introduction planning, vendors’ selection, enterprise-wide training, logistics planning and which method will be used for the transformation process are all included in the pre-implementation phase. (Ali and Miller 2017:675).

One of the major factors for a successful ERP implementation project is performing an assessment of organizational readiness with extensive preparing beforehand. The absence of such evaluation and estimation, may lead to a fatal failure of the whole project. As a result, such a preparation is necessary during the pre-implementation phase of implementing ERP. (AlHakimi and AlZahary, 2015: 69).

Afterwards comes the implementation phase, which divided into two important sub-phases. The first one is where tailoring the new system to the organizational needs takes place, in addition to business process management and user guidance and priming. The second sub-phase involves the “going-live” task, which is normally executed by the system’s vendor or consultor; it involves the technical installation of the new ERP system using the implementation method chosen. (Zach et al, 2012: 315)

Finally, an ERP implementation project should never be neglected after the “go-live” stage, assuming that since the system is up and running, the whole project is done, and confining it to a termination date. That is when the post-implementation phase starts, which can be considered a critical point in the whole implementation process. During the post-implementation phase, the system has to be tested on a regular base, to check for system reliability and effectiveness, data integrity and system utilization. (Ali and Miller 2017:679).

Moreover, a huge number of users are involved during some of the post-implementation phase procedures such as stabilization, operation and extension of the ERP system. As a result, some unexpected problems may occur due to the large volume of end users utilizing the new systems, which makes the post-implementation phase a critical point to assess every aspect of the process, with the help of user participation. (Ju et al, 2016: 93). Finally, during the post-implementation phase, an organization is able to evaluate the effectiveness of the ERP implementation project, operational and financial wise and as an investment in general. (Ali and Miller 2017:679).

2.1.4.3 Implementation Challenges

Implementing an ERP system usually requires changes to occur in the organization, such as business process re-engineering, and in addition the implementation as a project can be tedious and very costly. Due to that ERP systems are built on the “best-practices” model, they need constant monitoring to avoid clashes or disturbing to the smooth flow of an organization’s processes. Moreover, some issues such as project tardiness, technical and administrative complications or sometimes full project failure may result if there’s a lack of “realignment strategy” in the ERP system, which highlights the importance of user interaction and involving every organizational entity every step in the implementation phase.(Ali and Miller 2017:673).

Additionally, logistics and security challenges can result from implementing an ERP system, even if it was adequately executed. (Haynes and Li, 2016: 171). On the other hand, ERP vendors and customers suffer from some challenges that result from the ever-evolving world of computing and the rapid development of the Internet, which pushes vendors to explore and research further, to design and customize ERP products that are fit for every type of business, offering a smooth manner and high collaborative environment. (Rashid et al, 2002: 2).

2.1.5 ERP Benefits

Implementing an ERP system has various benefits and positive influences on organizations, such as saving operating costs, as the modules embedded in the ERP system for the financial processes help save resources, reduce data redundancy and operating mistakes, offers up to date information that is accessible across the entire organization and automates tasks that are monotonous. Enhancing fulfillment processes and cash flow is another benefit from ERP, as The Sales Module help an organization to efficiently trace all its sales processes, and The Controlling Module provides proactive features and complicated analytics tools. Moreover, since that the core service that ERP systems provide for organizations is accurate, updated and relevant information across the organization, this helps majorly in decision-making, supported by advanced reports and data visualization. (Scrutu and Lupu, 2016: 145)

Additionally, ERP systems’ performance can be positively affected, in terms of cost, time and activity performance, by having a high measure of compatibility between the ERP process and the organizational functions and processes, which leads to greater user satisfaction and individual benefit. (Eid and Abbas, 2017: 533). Furthermore, ERP benefits can be categorized into either tangible benefits such as inventory or personnel reduction and intangible benefits such as information visibility or customer responsiveness, or organizational, financial, strategic, managerial and strategic benefits. However, research has proved that the many benefits of implementing an ERP system, whether tangible or not, may take longer time than expected to appear and deliver organizational gains, which can extend into years after going live. (AlHakimi and AlZahari, 2015: 60-61)

2.1.6. ERP Model

2.1.6.1 Cloud ERP

2.1.6.1.1 Definition and Function

When purchasing an ERP system, the user has to buy the whole software with all its modules, and in some case not all the modules are needed or used by organizations, which could lead to money and time waste. As a result, Cloud ERP was designed to offer the same functionalities, features and benefits as the traditional ERP, but suppliers can only access the infrastructure when they need to use a certain feature, in a pay-per-use model. (Johansson et al. 2015:4212). However, there are no extra dependent costs or server charges to be paid by the organization upon implementing Cloud ERP.

In addition, there is no additional IT infrastructure, in terms of hardware or software, needed to install Cloud ERP, as it mainly runs on internet connection. Compared to an on-site ERP system, Cloud ERP is way faster and easier to install. (Gupta et al, 2017: 1056). Furthermore, Cloud ERP is the ERP systems but with embedded features of cloud computing, which are offered as a Software as a Service model, such as SAP’s “Business ByDesign”. (Abd Elmonem et al. 2016:2).

2.1.6.1.2 Cloud ERP Types

There are three types of Cloud ERP software services, the first one is called the ERP public cloud which is provide on SaaS basis with virtualized infrastructure, which makes it suitable for small to medium size companies. Second type is ERP private cloud, which provides high level of security so as to satisfy customers' by giving them their full privacy and protection, which makes it fitting for large sized companies. Third is the hybrid cloud which is basically a fusion between the public and private cloud ERP software, which offers organizations the opportunity to attain the advantage of them both. (N. Carutasu and G. Carutasu 2016:34).

2.2 Business Process Management (BPM)

2.2.1 BPM Definition

Processes such as production, finance, fulfillment, procurement and control together, with functions and features that target achieving a settled business goal, are included in a group of business process. (Ammar 2017:235). Moreover, in order to assure the alignment with the strategies of the organization, BPM, which is an administrative punctuality, stresses upon managing the organization’s processes and improving them. Not only does it guarantee the alignment with the strategies of the organization, but also it is linked with the organizational objective. (Segatto et al. 2013:704).

Another equally important point is the fact that BPM capabilities are known for their power to cooperate features of other assets and capital with various types and flows of technology, together with different production functions. Additionally, there are double categories for the BPM; firstly, the managerial capabilities that are able of creating competitive advantages together, which are split into employee empowerment and management engagement, which are essential tools in a business maturity model. Secondly, technical BPM, which emphasizes on innovation and enhancing the performance of the organization. (Wong et al. 2014:603-605).

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