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Journal of Theoretical and Applied Information Technology

2005 - 2008 JATIT. All rights reserved. www.jatit.org

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IMPACT OF ERP SYSTEMS ON SMALL AND MID SIZED PUBLIC SECTOR ENTERPRISES
Ashim Raj Singla Institute of Management Technology Ghaziabad, India. Email: (arsingla@imt.edu; ashim.singla@gmail.com) ABSTRACT ERP Systems are the most integrated information systems that cut across various organizations as well as various functional areas. It has been observed that ERP systems prove to be a failure either in the design or its implementation. A number of reasons contribute in the success or failure of an ERP systems. Success or failure of ERP system can be estimated on the basis of impact of ERP on that organization. In this paper an attempt has been made to study the impact of ERP systems in mid-sized Indian public sector organizations. For this study, two public sector companies namely PUNCOM and PTL located in northern India have been selected. Based on the model used to study ERP impact and thus the findings, various recommendations have been put forward to suggest a strategy so as to mitigate and manage such successful implementation. Keywords: Enterprise Resource Planning (ERP), ERP impact, ERP Design and Implementation, Information systems auditors. 1. INTRODUCTION: Enterprise Resource Planning softwaresystems (ERP) encompass a wide range ofsoftware products supporting day-to-day businessoperations and decision-making. ERP serves manyindustries and numerous functional areas in anintegrated fashion, attempting to automateoperations from supply chain management,inventory control, manufacturing scheduling andproduction, sales support, customer relationshipmanagement, financial and cost accounting,human resources and almost any other dataoriented management process. ERP systems aredesigned to enhance rganizationscompetitiveness by upgrading an organizationsability to generate timely and accurate informationthroughout the enterprise and its supply chain. Asuccessful ERP system implementation canshorten production cycles, increases accuracy ofdemand for materials management & sourcing andleads to inventory reduction because of materialmanagement, etc. Moreover it can be used as aprimary tool for re-engineering. However variousstudies have revealed that not all ERPimplementations are successful. According to GrayA. Langenwalter (2000), ERP implementationfailure rate is from 40% to 60%, yet companies tryto implement these systems because they areabsolutely essential to responsive planning andcommunication. The competitive pressureunleashed by the process of globalization isdriving implementation of ERP projects inincreasingly large numbers, so a methodologicalframework for dealing with complex problem ofevaluating ERP projects is required.It has been found that, unique risks in ERP implementation arises due to tightly linkedinterdependencies of business processes, relationaldatabases, and process reengineering (SallyWright, Arnold M. Wright, 2002). Similarly,business risks drive from the models, artifacts, andprocesses that are chosen and adopted as a part ofimplementation and are generated from the firmsportfolio of MAPs with respect to their internalconsistency and their external match with businesspartners. Organizational risks derive from theenvironment including personnel andorganizational structure in which the system ischosen and implemented (Daniel E. OLeary,2000).

According to Umble & Umble (2002), threemain factors that can be held responsible forfailure of ERP system are: poor planning or poormanagement; change in business goals duringproject; and lack of business management support.In another study, it has been found that companiesspent large money in developing ERP systems thatare not utilized. It is quite common for ERPproject to finish late, cost more than predicted,unreliable and difficult to maintain. MoreoverBPR also had a high failure rate with consultantsestimating that as many as 70% of the BPRprojects fails (Hammer and Champy, 1993).
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2005 - 2008 JATIT. All rights reserved. www.jatit.org

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Hammer (1990) advocates that the power of modern technology should be used to radically design business processes to achieve dramatic improvements in their performance. From a software perspective ERP systems is complete. But from the business perspective it is found that software and business processes needs to be aligned, which involves a mixture of business process design and software configurations (Hamer, 1990). So a purely technical approach to ERP system design is insufficient. According to David Allen, Thomas Kern (2002), a careful use of communication and change management procedures is required to handle the often business process reengineering impact of ERP systems which can alleviate some of the problems, but a more fundamental issue of concern is the cost feasibility of system integration, training and user licenses, system utilization, etc. needs to be checked. A design interface with a process plan is an essential part of the system integration process in ERP. By interfacing with a process plan module, a design interface module helps the sequence of individual operations needed for the step-by-step production of a finished product from raw materials (Hwa Gyoo Park). Similarly the contributions made by many other authors have been listed in the Table 1 as given below: Table 1: Literature Review for ERP Implementation and Impact Study Authors Justify the ERP System based on reliable figures and well thought through assumptions. Pernille Kraemmerand, Charles Moller, Harry Boer Use right mix of business analyst, technical experts and users from within the implementation company and consultants from external companies. Anne Parr & Graeme Shanks ERP systems helps in reducing inventory level by 15-20% in overall channel Elsiabeth J. Umble & Michael Umble Financial accounting and treasury management module helps in improving cash management

Fiona Fui-Hoon Nah, Kathryn M. Zuckweller, Janet Lee-Shang Lau Identify strategies to re-skill the (IT) workforce and acquire external expertise. Pernille Kraemmerand, Charles Moller, Harry Boer Integrated enterprise level applications reduces various cycle times in different processes Pernille Kraemmerand, Charles Moller, Harry Boer Top managements advocacy, provision of adequate resources and commitment to project. Anne Parr & Graeme Shanks New ERP applications are Y2K compliant Elsiabeth J. Umble & Michael Umble Extended ERP with CRM and SCM packages strengthens the overall supply chain of the organization Fiona Fui-Hoon Nah, Kathryn M. Zuckweller, Janet Lee-Shang Lau Top management commitment to restructuring and following an enterprise-wide design which supports data integration. Mary Sumner ERP reduces organizational business risks and enhances regulatory compliances Pernille Kraemmerand, Charles Moller, Harry Boer Organizations commitment for change and determination in face of inevitable problems with implementation. Anne Parr & Graeme Shanks ERP systems increases stakeholders confidence in the organization Elsiabeth J. Umble & Michael Umble Implementation requires major commitment from an organizations Theodore Grossman and
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2005 - 2008 JATIT. All rights reserved. www.jatit.org

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employee. James Walsh It delivers clear communication of strategic goals. Elsiabeth J. Umble & Michael Umble Communication is complete, and targeted. Communications is important at all levels and among stakeholders. Fiona Fui-Hoon Nah, Kathryn M. Zuckweller, Janet Lee-Shang Lau It helps in effective communications. Mary Sumner Communication is essential for creating approval and widespread understanding and acceptance of ERP. Pernille Kraemmerand, Charles Moller, Harry Boer View ERP as a enterprise-wide venture. Elsiabeth J. Umble & The ERP implementation is viewed as an ongoing process. Michael Umble The steering committee determines the scope and objectives of the project

in advance and then adheres to it. Anne Parr & Graeme Shanks ERP package selection is a very important step in whole implementation process Elsiabeth J. Umble & Michael Umble Objective is to find GAP between the definition of processes in ERP system and their definition in organization. Niv Ahituv, Seev Neumann and Moshe Zviran Different management competences, in particular personal, business and technological competences, dominate different stages of ERP journey. Pernille Kraemmerand, Charles Moller, Harry Boer Minimal customization and uncomplicated option selection Anne Parr & Graeme Shanks Configuration of overall ERP architecture, appropriate modeling methods/techniques, vigorous and sophisticated testing is important. Fiona Fui-Hoon Nah, Kathryn M. Zuckweller, Janet Lee-Shang Lau ERP system centralizes the overall auditing process in an organization Anne Parr & Graeme Shanks Project champion is more important in ERP implementation. Fiona Fui-Hoon Nah, Kathryn M. Zuckweller, Janet Lee-Shang Lau It facilitates in improved service to customers and suppliers. Marc N. Haines, Dale L. Goodhue. ERP makes MIS more accurate and accessible Mary Sumner Acquiring vendor support for capacity planning and upgrading. ERP configuration requires large amount of BPR should occur iteratively to take advantage of the best practices. Fiona Fui-Hoon Nah, Kathryn M. Zuckweller, Janet Lee-Shang Lau Re-engineer the business processes to fit to the standard model and the pre-configured processes and transactions embedded in the software; avoid modifications of the software code to fit to the organizations current processes. Pernille Kraemmerand, Charles Moller, Harry Boer ERP is just as much an organizational and business issue as it is about technology. Successful implementation requires that three aspects are balanced continuously. Set realistic milestones and end dates Anne Parr & Graeme Shanks
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Milestones and targets need to be actively monitored to track the progress of an ERP project. Fiona Fui-Hoon Nah, Kathryn M. Zuckweller, Janet Lee-Shang Lau

It reduces, information processing cost, bonding cost, residual cost, communication and documentation cost Pernille Kraemmerand, Charles Moller, Harry Boer Package installation must be scheduled as it takes time and costs more than originally planned. Theodore Grossman And James Walsh A loose budget policy in terms of time and cost restrictions, in the innovation phase (visioning, software selection, test ad pilot) contributes to program success. Pieter M.A. Ribbers, Klauss-Aclemens Schoo. It requires Extensive education and training is provided. Elsiabeth J. Umble & Michael Umble The ERP teaching methodology focuses on teaching of three topics: traditional management of operations, integrated and dynamic approach to operations, use of advanced information systems to support management operations. Avraham Shtub End user receiving training in four knowledge levels (command based, tool procedural, business procedural, tool conceptual training) are expected to have more accurate mental models over time. Tony Coulson, Conrad Shayo, Lorne Olfman, C.E. Tapie Rohm. To realize the benefits of ERP considerably training is required on new system, how to use it, and how will it change the current way of working in terms of new activities and new collaborative relationships. Pernille Kraemmerand, Charles Moller, Harry Boer Implement fewer modules and less functionality implemented, smaller user groups and fewer/single sites. Anne Parr & Graeme Shanks It allows new services to customers and suppliers Elsiabeth J. Umble & Michael Umble It enhances support to organizational processes Pieter M.A. Ribbers, Klauss-Clemens Schoo. Need for change is very important as the stronger the need for change, more likely top management and stakeholder will support ERP implementation. Pernille Kraemmerand, Charles Moller, Harry Boer ERP implementation will change job descriptions and performance measures. Employees must be given clear job descriptions and performance targets.. ERP imposes its own login on the organization and becomes a powerful actor in the organization. If the actor is not managed tightly, the functions of the ERP system will tends to drift. Understanding of such factors helps in planning and conducting assurance engagements of the reliability of these complex computer systems. But there are certain gaps in existing studies regarding impact of ERP systems on

organizations that too in context with small and mid sized public sector enterprises. With these objectives in mind and based on the above literature survey and discussions held with academicians & users of ERP system, the following factors have been identified (Table 2) to understand the impact of ERP systems.
Journal of Theoretical and Applied Information Technology
2005 - 2008 JATIT. All rights reserved. www.jatit.org

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Table 2: Sub factors for ERP Impact 1. Tangible Benefits after ERP Implementation Inventory Reduction Personal reduction Productivity improvement Order management improvement Technology cost reduction Procurement cost reduction Cash management improvement Revenue/profit improvement Transportation/ logistics cost reduction Maintenance reduction On time delivery improvement 2. Intangible benefits after ERP implementation New/improved business processes Customer responsiveness Cost reduction Integration Standardization Flexibility Globalization Year 2000 Business performance Supply/ demand chain Information/visibility Economic Performance of firm (Internal coordination cost) Monitoring cost Bonding cost Residual cost Information processing cost Communication cost Documentation cost Opportunity cost due to poor information 3. Business Performance factor Reduced organizations business risks Enhanced organizations regulatory compliance Makes MIS more accurate and accessible. Facilitate improved services to customer and suppliers Allows new services to customer and suppliers Enhanced primary users knowledge and skills Increased institutional accountability Increased shareholders confidence in organization Enhanced support to organizational activities Enhanced organization business performance Decreased work load in various departments

Decreased workload in central department ERP is less costly to maintain and operate as compared to legacy systems ERP is less costly to enhance/upgrade as compared to legacy system ERP is less costly to integrate as compared to legacy system ERP made it easier to take advantage of new technology Nature of work in various departments has changed
Journal of Theoretical and Applied Information Technology
2005 - 2008 JATIT. All rights reserved. www.jatit.org

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Objective Keeping in view the importance and gaps in research, a study with an objective to find the impact ERP system on selected organizations and thus on small & mid-sized public sector organizations in India was undertaken. Scope The study has been conducted in two midsized manufacturing public sector organizations PUNCOM (Telecom system) and PTL (Tractors) located in northern India. PUNCOM specialize in R&D as well as manufacturing in telecommunication systems and various related equipments. It has developed its enterprise-wide product to streamline the whole system. On the other hand PTL is large tractor manufacturing unit and is controlling its own several subsidiary units. One of its subsidiaries SWRAJ is developing mini trucks. PTL is using its self designed enterprisewide product, but is planning to implement SAP. Research Methodology 1. Secondary data for research was collected from related books, publication, annual reports, and records of organization under study. 2. Primary data has been collected through questionnaire-cum-interview technique. For this purpose questionnaire was created on already established models and survey of literature. Questionnaire was first pre-tested on 20 managers from the actual sample to be interviewed for checking its reliability and content validity. Cronbachs alpha test was applied, where the value of coefficient was 0.8. Thus pre-tested & modified questionnaire was administered to all the sampled respondents. To understand the impact, all the managers in the EDP departments along with an appropriate sample of the managers at the three levels of the management of each of the selected organizations were selected. The sample of the randomly selected managers was proportionate and statistically sound that represents the universe of managers of the selected organizations. 115 experienced respondents from both the companies who specialize in their related production skills and use of ERP system had participated in the study. 3. Data was collected on 5 point Likert scale depending on the relative importance of a factor.

Further average score are calculated for all 115 respondents of two organizations. Further in order to check difference in opinion across all three management levels, independent level t-test and one way ANOVA is applied. For this purpose Null Hypothesis was developed as given below: H0: 1 = 2 (There is no difference in opinion across the two organizations) H1: 1 2 (There is difference of opinion across the two organizations) 4. Further following norms were considered for the choice of respondents in each participating organizations. a. 30% of the population where size > 100 b. 25% of the population where size < 100 Similarly norms were followed for sample distribution (Level wise) of each of the participating organizations: a. Level I (Strategic Planning) 50% of the population. b. Level II (Executive Control) 50% of the population. c. Level III (Operational Control) 25% of the population These norms were decided after a detailed discussion with academicians, researchers and industry experts. It was found that by increasing sample size, there was a marginal change in results and effort to collect data would have increased considerably. Following tables and graphs explains the sampling frame. Table3: Sample Distribution (Company wise) SNo. Company Population Sample Response %age
Journal of Theoretical and Applied Information Technology
2005 - 2008 JATIT. All rights reserved. www.jatit.org

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1 Punjab Communication Ltd. (PCL) 213 64 60 94% 2 Punjab Tractors Limited (PTL) 206 62 55 89% Table4: Sample Distribution (Level wise) Level Company Punjab Communication Ltd Punjab Tractors Ltd. Universe Sample Response %age Universe Sample Response %age I 13 07 5 71% 8 4 3 75% II 45 22 20 91% 35 18 16 89% III 155 39 35 90% 163 41 36 88% Analysis and Discussions To study the ERP impact on both the selected organizations, 46 variables were selected from literature review and discussions with ERP practitioners, academicians and researchers. These variables are further classified in three categories: Tangible benefits Non-tangible benefits Impact on business performance.

Tangible benefits of ERP system Table below gives the average score of tangible benefits among all three management levels of both the selected organizations. Table 5: Average score for tangible benefits in ERP Implementation (N=115; Min =1 and Max=5) Factors Management Levels PTL PCL Both PCL and PTL I II III Total I II III Total I II III Total Inventory Reduction * 4.00 4.10 3.49 3.73 4.67 3.56 3.69 3.71 4.25 3.86 3.59 3.72 Personal reduction 3.00 2.80 2.83 2.83 3.33 2.81 2.83 2.85 3.13 2.81 2.83 2.84 Productivity improvement 3.80 3.95 3.49 3.67 4.33 3.63 3.61 3.65 4.00 3.81 3.55 3.66 Order management improvement 4.00 3.55 3.40 3.50 3.00 3.44 3.47 3.44 3.63 3.50 3.44 3.47 Technology cost reduction 3.80 3.15 3.11 3.18 2.33 3.06 3.25 3.15 3.25 3.11 3.18 3.17 Procurement cost reduction 3.00 2.90 2.77 2.83 2.67 2.94 2.89 2.89 2.87 2.92 2.83 2.86 Cash management improvement 4.00 4.00 3.69 3.82 3.33 4.06 3.94 3.95 3.75 4.03 3.82 3.88 Revenue/profit improvement 3.60 3.60 3.09 3.30 2.67 3.56 3.36 3.38 3.25 3.58 3.23 3.34 Transportation/ logistics cost reduction 3.60 3.45 3.03 3.22 3.00 3.25 3.31 3.27 3.38 3.36 3.17 3.24 Maintenance reduction 4.00 3.35 3.46 3.47 3.33 3.38 3.47 3.44 3.75 3.36 3.46 3.45 On time delivery improvement 3.80 3.70 3.26 3.45 4.00 3.50 3.39 3.45 3.87 3.61 3.32 3.45
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Above table reveals that overall impact of ERP implementation is not very high on both the selected organizations to achieve tangible benefits (as Avg.<4). At the same time, strategic level managers of both the organizations are of the opinion that implementing ERP has high impact in achieving inventory reduction and productivity improvement (as Avg.>4). Similarly, the strategic level managers of PTL are also of the opinion that, ERP implementation has high impact on improving order management system; cash management; and maintenance reduction. Whereas strategic level managers of PCL are also of the opinion that ERP has high impact on improving on-time delivery system. However

executive level managers of both organizations also think that ERP impact is high in achieving cash management. In continuation to this, both PCL and PTL are of opinion that ERP has moderate impact (Avg.>3) to achieve inventory reduction; productivity improvement; order management; technology cost reduction; cash management; revenue/profit management; transportation/logistics cost reduction; maintenance reduction and on time delivery improvement. Where as ERP impact is low (as Avg.<3) to achieve personal reduction and procurement cost reduction among both the organizations. From above table, it is also clear that strategic level managers of PTL are quite optimistic about impact of ERP implementation as average score for all the tangible benefit variables is greater that 3. On the other hand strategic level managers of PCL are of the view that ERP has low impact over technology cost reduction; procurement cost reduction and revenue/profit improvement. Further both T-test and ANOVA test results proves similarity in opinion across various management levels as significance value is greater than 0.05 for almost all the factors (see Table 6). Table 6: Difference in opinion across management levels of PCL & PTL for impact of ERP system to achieve tangible benefits (N=115). T-Test at 99% confidence level (Sig. < 0.05) ANOVA at 95% confidence level Top Middle Lower Inventory Reduction (0.043) Personal reduction Productivity improvement Order management improvement Technology cost reduction (0.038) Procurement cost reduction Cash management improvement Revenue/profit improvement Transportation/ logistics cost reduction Maintenance reduction On time delivery improvement ERP impact to achieve non-tangible benefits Table below gives the average score for all non-tangible achieved by ERP implementation as tested in PCL and PTL Table 7: Average score for non-tangible benefits after ERP Implementation (N=115; Min =1 and Max=5) Factors Management Levels PTL PCL Both PCL and PTL I II III Total I II II Total I II III Total

New/improved business processes 4.40 4.05 4.00 4.05 4.67 3.81 4.03 4.00 4.50 3.94 4.01 4.03 Customer responsiveness 3.80 3.85 3.46 3.62 3.33 3.63 3.53 3.55 3.63 3.75 3.49 3.58 Cost reduction 4.00 3.65 3.37 3.52 3.00 3.69 3.42 3.47 3.63 3.67 3.39 3.50 Integration 4.40 3.95 3.77 3.88 3.67 3.81 3.89 3.85 4.13 3.89 3.83 3.87
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Standardization 4.00 3.90 3.80 3.85 3.67 4.00 3.78 3.84 3.88 3.94 3.79 3.84 Flexibility 4.00 3.85 3.71 3.78 3.67 3.81 3.83 3.82 3.88 3.83 3.77 3.80 Globalization 3.80 3.70 3.37 3.52 3.33 3.50 3.58 3.55 3.63 3.61 3.48 3.53 Year 2000 3.00 3.20 2.89 3.00 3.33 3.00 3.14 3.11 3.13 3.11 3.01 3.05 Business performance 4.00 4.05 3.91 3.97 4.33 4.06 3.94 4.00 4.13 4.06 3.93 3.98 Supply/ demand chain 3.80 3.60 2.83 3.17 3.00 3.25 3.25 3.24 3.50 3.44 3.04 3.20 Information/visibility 4.60 4.55 4.06 4.27 4.67 4.25 4.36 4.35 4.63 4.42 4.21 4.30 Monitoring cost 3.20 2.80 2.63 2.73 2.33 2.75 2.83 2.78 2.88 2.78 2.73 2.76 Bonding cost 3.00 2.85 2.43 2.62 2.00 2.88 2.78 2.76 2.63 2.86 2.61 2.69 Residual cost 2.80 2.80 2.37 2.55 2.67 2.69 2.72 2.71 2.75 2.75 2.55 2.63 Information processing cost 3.60 3.85 3.51 3.63 4.00 3.81 3.58 3.67 3.75 3.83 3.55 3.65 Communication cost 4.00 4.25 3.80 3.97 4.33 4.06 3.97 4.02 4.13 4.17 3.89 3.99 Documentation cost 4.60 4.50 4.00 4.22 5.00 4.00 4.22 4.20 4.75 4.28 4.11 4.21 Opportunity cost due to poor information 4.40 3.85 3.43 3.65 3.67 3.69 3.72 3.71 4.13 3.78 3.58 3.68 From above table it is clear that both the organizations agree over factors like: new/improved business processes; information visibility and reduction in documentation cost, etc as highly important (as Avg.>4). At the same time strategic level managers of both PCL and PTL are also of the opinion that ERP impact is high on factors like overall integration; improved business performance; reduction in communication cost and decreased opportunity cost due to poor information. However, top level managers of PTL also agrees, that ERP has high impact on cost reduction, standardization and increased flexibility in the system. Whereas top level respondents of PCL had also given high score to impact of ERP in reducing information processing cost. Further, all management levels agrees that ERP implementation has moderate impact to achieve customer responsiveness; integration; overall cost reduction; standardization; flexibility; globalization; Year 2000 solution; improved supply/demand chain and information processing cost. Whereas ERP impact is low (as Avg.<3) in reducing monitoring cost; bonding cost and residual cost. Further, from the results of T-test and ANOVA test it is clear that there is no difference in opinion for various factors except documentation cost as significance

value is greater than 0.05 for all the factors (see Table 8). Table 8: Difference in opinion across management levels of PCL & PTL for impact of ERP system in non-tangible benefits (N=115). Factors T-Test at 99% confidence level (Sig. < 0.05) ANOVA at 95% confidence level Top Middle Lower Total New/improved business processes Customer responsiveness Cost reduction Integration Standardization Flexibility Globalization Year 2000 Business performance Supply/ demand chain Information/visibility Monitoring cost Bonding cost Residual cost Information processing cost
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Communication cost (0.013) Documentation cost (0.042) Opportunity cost due to poor information So, for all other non-tangible benefits except documentation cost, Null hypothesis (H0) is selected against alternate hypothesis (H1). Business performance impact of ERP system The table below gives the average score of all three management levels across both PCL and PTL for impact of ERP implementation to achieve business performance. Table 9: Average score for business performance impact after ERP Implementation (N=115; Min =1 and Max=5) Factors Management Levels PTL PCL Both PCL and PTL I II III Total I II III Total I II III Total Has reduced organizations business risks 4.20 3.45 3.20 3.37 3.00 3.38 3.36 3.35 3.75 3.42 3.28 3.36 Enhanced organizations regulatory compliance 4.00 3.75 3.49 3.62 3.67 3.56 3.81 3.73 3.88 3.67 3.65 3.67 Has made MIS more accurate and accessible. 4.40 4.25 4.11 4.18 4.33 3.94 4.33 4.22 4.38 4.11 4.23 4.20

Has facilitated improved services to customer and suppliers 4.20 3.90 4.11 4.05 3.33 3.88 Has allowed new services to customer and suppliers 3.60 3.35 3.54 3.48 3.00 3.25 Has enhanced primary users knowledge and skills 4.60 4.45 4.37 4.42 4.33 4.37 Has increased institutional accountability 4.00 4.05 3.91 3.97 3.67 4.06 Has increased shareholders confidence in organization 4.40 4.40 4.23 4.30 4.33 4.19 Has enhanced support to organizational activities 4.40 3.95 3.63 3.80 3.67 3.56 Has enhanced organization business performance 4.40 4.30 4.00 4.13 4.67 4.06 Has decreased work load in various departments 4.60 4.70 4.46 4.55 4.67 4.56 Has decreased workload in central department 3.60 3.85 3.89 3.85 4.00 3.94 ERP is less costly to maintain and operate as compared to legacy systems 2.80 3.00 3.29 3.15 3.67 3.25 ERP is less costly to enhance/upgrade as compared to legacy system 4.00 3.55 3.20 3.38 3.33 3.38 ERP is less costly to integrate as compared to legacy system 3.40 3.30 3.23 3.27 3.33 3.31
2005 - 2008 JATIT. All rights reserved. www.jatit.org

4.14 4.02 3.88 3.89 4.13 4.03 3.47 3.38 3.38 3.31 3.51 3.43 4.50 4.45 4.50 4.42 4.44 4.43 3.97 3.98 3.88 4.06 3.94 3.97 4.42 4.35 4.38 4.31 4.32 4.32 3.94 3.82 4.13 3.78 3.79 3.81 4.17 4.16 4.50 4.19 4.08 4.15 4.67 4.64 4.63 4.64 4.56 4.59 3.97 3.96 3.75 3.89 3.93 3.90

3.03 3.13 3.13 3.11 3.15 3.14

3.36 3.36 3.75 3.47 3.28 3.37

3.33 3.33 3.38 3.31 3.28 3.30

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ERP made it easier to take advantage of new technology 3.60 3.55 3.49 3.52 4.00 3.44 3.50 3.51 3.75 3.50 3.49 3.51 Nature of work in various departments has changed 4.20 4.60 4.20 4.33 4.67 4.44 4.28 4.35 4.38 4.53 4.24 4.34 According to above table, overall response of all three management levels is very high (as Avg.>4) for factors like: achieve accuracy in management information system; improved services to customers and suppliers;

knowledge enhancement of primary users; increased shareholders confidence in organization; improved business performance; decreased work load in various departments and changed nature of work in various departments. However, strategic level managers of PTL are also of the opinion that ERP implementation has highly reduced business risks; enhanced organizations regulatory compliance; increased institutional accountability and enhanced support to organizational activities. Similarly all management levels agrees that ERP implementation has moderate impact to achieve reduction in organizations business risks; enhanced regulatory compliances; new services to customers and suppliers; increased institutional accountability; enhanced support to organizational activities; decreased workload in central department; less costly to maintain/operate; enhancing/upgrading as compared to legacy system; and made easier to take advantage of new technology (as Avg.>3). However, strategic level managers of PTL had rated very low for the factor that ERP is less costly to maintain and operate as compared to legacy system (as Avg.<3). Further from T-test and ANOVA test results (see Table 10), it is clear that among all management levels across both PCL and PTL, there is no difference in opinion as significance value of these factors is greater than 0.05. Hence, Null hypothesis is selected for almost all the factors. Table 10: Difference in opinion across management levels of PCL & PTL for impact of ERP system in business performance (N=115). Factors T-Test at 99% confidence level (Sig. < 0.05) ANOVA at 95% confidence level Management Levels I II III Has reduced organizations business risks Enhanced organizations regulatory compliance (0.046) Has made MIS more accurate and accessible. Has facilitated improved services to customer and suppliers Has allowed new services to customer and suppliers Has enhanced primary users knowledge and skills Has increased institutional accountability Has increased shareholders confidence in organization Has enhanced support to organizational activities Has enhanced organization business performance Has decreased work load in various departments Has decreased workload in central department

ERP is less costly to maintain and operate as compared to legacy systems ERP is less costly to enhance/upgrade as compared to legacy system ERP is less costly to integrate as compared to legacy system ERP made it easier to take advantage of new technology Nature of work in various departments has changed
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Finally, the analysis of data suggests that some of the key tangible benefits of implementing ERP systems are: inventory management, productivity improvement and cash management. Similarly, key non tangible benefits of implementing ERP are: reduction in different operating and maintenance costs, improved business processes, process standardization and information visibility. Other business performance impact on organization could be: enhanced regulatory compliance, more accurate MIS, increased institutional accountability, and reduced work load in different departments. Conclusions: Empirical data results have provided general support for our hypotheses. We find that ERP adopters are consistently higher in performance across a wide variety of measures than non-adopters. Overall, this suggests that indeed ERP systems yield substantial benefits to the firms that adopt them, and that the adoption risks do not exceed the expected value, although there is some evidence (from analysis of financial leverage) that suggests that firms do indeed perceive ERP projects to be risky. There also appears to be an optimal level of functional integration in ERP with benefits declining at some level. While our data does not currently allow more detailed analysis of the exact pattern of adoption (due to lack of detailed data on the extent of deployment at the worker level) or the longterm impact on productivity (due to lack of longterm post implementation data at this time), both of these issues are promising areas for future research. References [1] Allen David, Kern Thomas Kern & Havenhand Mark (2002): ERP Critical Success Factors: an exploration of the contextual factors in public sector institutions, Proceedings of 35th Annual Hawaii International Conference on System Sciences. [2] Avraham Shtub (2001), A framework for teaching and training in the ERP era,

International Journal of Production Research, 3, 567-576. [3] C. Boynton Andrew & W. Zmud Robert(1984): An Assessment of Critical Success Factors, Sloan Management Review, University of North Carolina. [4] Colette Rolland, Naveen Prakash (2001), Matching ERP system functionality to customer requirement, IEEE, 1090705X. [5] Daniel E. OLeary (2002). Information system assurance for ERP systems: Unique Risk Considerations. Journal of Information systems,16, 115-126. [6] Davis, Gordon B. (1986): An empirical study of the impact of user involvement on system usage and information satisfaction, Communications of the ACM, 29 (3) : 232-238,. [7] Franch Xavier, Illa Xavier & Antoni Pastor Joan (2000): Formalising ERP selection criteria, IEEE. [8] Gibson Nicola, Light Ben & P. Holland Christopher (1999): Enterprise Resource Planning: A Business Approach to Systems Development, Proceedings of 32nd Hawaii International Conference on System Sciences. [9] Goyal, D.P. (2000): Management Information System Managerial Perspective. New Delhi: Macmillan India Ltd. [10] Keng Saiu, Jake Messersmith (2002), Enabling Technologies for E-Comm and ERP integration,Quarterly Journal of Electronic Commerce, 3, 43-52. [11] Malik Kamna and Goyal DP (2001), Information Systems Effectiveness An Integrated Approach, IEEE Engineering and Management Conference (IEMC'01) Proceedings on Change Management and the New Industrial Revolution, Albany, NewYork, USA, pp. 189-194. [12] Ribbers, Schoo (2002), Program management and complexity of ERP Implementation, Engineering management Journal, 14,2. [13] Shivraj, Shantanu (2000), Understanding user participation and involvement in ERP use, Journal of Management Research, Vol 1, No 1. [14] Teltumbde Anand (2000): A framework for evaluating IS projects, International

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Journal of Production Research, Vol 38, No 17. [15] Thomas L. Legare (2002), The Role of Organizational Factors in Realizing ERP Benefits, Information system management. [16] Wilhelm Scheer, Frank Habermann (2000), Making ERP a sucess, ACM, Vol 43,4. [17] Elisabeth J. Umble, M.Michael Umble (2002):Avoiding ERP implementation Failure, Industrial Management. [18] Ahituv Niv, Neumann Seev, Zviran Moshe, A system development methodology for ERP systems, Journal of Computer Information Systems, 2002. [19] Grossman Theodre, Walsh James, Avoiding the pitfalls of ERP system implementation, Information systems management, 2004. [20] Kraemmerand Pernille, Moller Charles, Boer Harry, ERP implementation: an integrated process of radical change and continous learning, Production planning and control, Vol. 14, No. 4, pp 338-348, 2003. [21] Hwa Gyoo Park, Framework of Design interface module in ERP, 1999 IEEE International Symposium on assembly and task planning, 1999. [22] Sumner Mary, Risk factors in enterprise-wide/ERP projects, Journal of Information Technology, 15, pp 317-327, 2000. [23] Wright Sally, Wright Arnold M, Information system assurance for Enterprise Resource planning systems: unique risk considerations, Journal of Information Sciences, Vol. 16, pp 99-113, 2002. [24] Hammer Michael, Champy James: Reengineering the Corporation, Nicholas Brealy Publishing, London, 1994. Web Links http://portal.acm.org http://ieeexplore.ieee.org www.proquest.com http://ernesto.emeraldinsight.co m

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ENTERPRISE RESOURCE PLANNING

2008

the system for your business are felt. Among the 63 companies surveyed including small, medium and large companies in a range of industries the average TCO was $15 million (the highest was$300 million and lowest was $400,000). While it's hard to draw a solid number from that kind of range of companies and ERP efforts, Meta came up with one statistic that proves that ERP is expensive no matter what kind of company is using it. The TCO for a "heads down" user over that period was a staggering $53,320.

12. WHEN WILL A COMPANY GET PAYBACK FROM ERP AND HOW MUCH?
The company shouldnt expect to revolutionize its business with ERP. It is a navel- gazing exercise that focuses on optimizing the way things are done internally rather than with customers, suppliers or partners. Yet the navel gazing has a pretty good payback if the company is willing to wait for it a Meta Group study of 63 companies found that it took eight months after the new system was in (31 months total) to see any benefits. But the median annual savings from the new ERP system were $1.6 million.

13. WHAT ARE THE HIDDEN COSTS OF ERP?


Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Armed with insights from across the business, ERP pros vote the following areas as most likely to result in budget overrun.
Training: Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. Training expenses are high
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because workers almost invariably have to learn a new set of processes, not just a new software interface. Worse, outside training companies may not be able to help you. They are focused on telling people how to use software, not on educating people about the particular ways you do business. Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system. One enterprising CIO hired staff from a local business school to help him develop and teach the ERP business-training course to employees. Remember that with ERP, finance people will be using the same software as warehouse people and they will both be entering information that affects the other. To do this accurately, they have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along. Ultimately, it will be up to your IT and businesspeople to provide that training. So take whatever you have budgeted for ERP training and double or triple it up front. It will be the best ERP investment you ever make.
Integration and testing : Testing the links between ERP packages and other

corporate software links that have to be built on a case-by-case basis is another oftenunderestimated cost. A typical manufacturing company may have add-on applications from the major e-commerce and supply chain to the minor sales tax computation and bar coding. All require integration links to ERP. If you can buy add-ons from the ERP vendor that is preintegrated, you're better off. If you need to build the links yourself, expect things to get ugly. As with training, testing ERP integration has to be done from a process-oriented perspective. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next, run a real purchase order through the system, from order entry through shipping and receipt of payment the whole order-to-cash banana preferably with the participation of the employees who will eventually do those jobs.
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Customization : Add-ons are only the beginning of the integration costs of ERP.

Much more costly, and something to be avoided if at all possible, is actual customization of the core ERP software itself. This happens when the ERP software can't handle one of your business processes and you decide to mess with the software to make it do what you want. You're playing with fire. The customizations can affect every module of the ERP system because they are all so tightly linked together. Upgrading the ERP package no walk in the park under the best of circumstances becomes a nightmare because you'll have to do the customization all over again in the new version. Maybe it will work, maybe it won't. No matter what, the vendor will not be there to support you. You will have to hire extra staffers to do the customization work, and keep them on for good to maintain it.
Data conversion: It costs money to move corporate information, such as customer

and supplier records, product design data and the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated or inspired by the ERP implementation.
Data analysis : Often, the data from the ERP system must be combined with data

from external systems for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget and they should expect to do quite a bit of work to make it run smoothly. Users are in a pickle here: Refreshing all the ERP data every day in a big corporate data warehouse is difficult, and ERP systems do a poor job of indicating which information has changed from day to day, making selective warehouse updates tough. One
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expensive solution is custom programming. The upshot is that the wise will check all their data analysis needs before signing off on the budget. Consultants ad infinitum: When users fail to plan for disengagement, consulting fees run wild. To avoid this, companies should identify objectives for which its consulting partners must aim when training internal staff. Include metrics in the consultants' contract; for example, a specific number of the user company's staff should be able to pass a projectmanagement leadership test similar to what Big Five consultants have to pass to lead an ERP engagement.
Replacing your best and brightest : It is accepted wisdom that ERP success

depends on staffing the project with the best and brightest from the business and IS divisions. The software is too complex and the business changes too dramatic to trust the project to just anyone. The bad news is a company must be prepared to replace many of those people when the project is over. Though the ERP market is not as hot as it once was consultancies and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford or that youre HR policies permit. Huddle with HR early on to develop a retention bonus program and create new salary strata for ERP veterans. If you let them go, you'll wind up hiring them or someone like them back as Consultants for twice what you paid them in salaries. Implementation teams can never stop : Most companies intend to treat their ERP Implementation as they would any other software project. Once the software is installed, they figure the team will be scuttled and everyone will go back to his or her day job. But after ERP, you can't go home again. The implementers are too valuable. Because they have worked intimately with ERP, they know more about the sales process than the salespeople and more about the manufacturing process than the manufacturing people. Companies can't afford to send their project people back into the business because there's so much to do after the ERP software is
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installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. And it is in analysis and, one hope, insight that companies make their money back on an ERP implementation. Unfortunately, few IS departments plan for the frenzy of post- ERP installation activity, and fewer still build it into their budgets when they start their ERP `projects. Many are forced to beg for more money and staff immediately after the go-live date, long before the ERP project has demonstrated any benefit.
Waiting for ROI : One of the most misleading legacies of traditional software

project management is that the company expects to gain value from the application as soon as it is installed, while the project team expects a break and maybe a pat on the back. Neither expectation applies to ERP. Most of the systems don't reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. And the project team is not going to be rewarded until their efforts pay off.
Post-ERP depression: ERP systems often wreak cause havoc in the companies

that install them. In a recent Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live. The true percentage is undoubtedly much higher. The most common reason for the performance problems is that everything looks and works differently from the way it did before. When people can't do their jobs in the familiar way and haven't yet mastered the new way, they panic, and the business goes into spasms.
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CHAPTER 2 REVIEW OF LITERATURE


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ERP IMPACT ON ORGANIZATIONS


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