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IMPACT OF NATIONAL CULTURE ON CSFs IN THE ERP SYSTEM IMPLEMENTATION PROCESS

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IMPACT OF NATIONAL CULTURE ON CSFs IN THE ERP SYSTEM IMPLEMENTATION PROCESS

Arun Madapusi Department of Management College of Business Administration

University of North Texas

P.O. Box 305429, Denton, Texas 76203-5429, USA Phone: (940) 565 3140, E-mail: madapusi@unt.edu

ABSTRACT

To meet the demands for sustainable organizational growth firms worldwide are turning to the use of packaged enterprise resource systems (ERP). The rise in global ERP deployments and their complex “make or break” implementation process has resulted in firms judiciously using critical success factors (CSFs) to facilitate their implementation process. This research study uses a theory-driven model to help academicians and practitioners better understand national culture CSF issues that underlie successful global ERP system initiatives.

INTRODUCTION

Firms today face the twin challenges of globalization and shortened product life cycles.

Globalization has pushed firms towards adopting the “best business practices” in the industry. Shortened life cycles call for better management of supply chain activities. Both these need faster access to intra and inter-firm accurate and real-time information. The availability and the relative ease of access to modern information technology (IT) and product and process

automation have made this feasible. These modern technologies, for the most part comprising of information and communication technology systems, have enabled firms to develop and

implement global enterprise-wide systems to reduce costs across their supply chains [3] [19].

In today’s dynamic business environments, understanding and improving business processes has become a benchmark for business success. To alter how they conduct business, firms around the world are taking advantage of packaged enterprise resource planning (ERP) systems [13]. ERP systems not only support traditional materials requirements planning (MRP) and manufacturing resource planning (MRP II) activities, but also include other intra-firm activities such as

accounting, sales and marketing, and logistics. These systems have now been expanded beyond the firm to include inter-firm activities [6].

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Firms have by and large reported success in implementing ERP systems. There have, however, been many failures in implementing these systems, with consequent financial losses and disruptions in operations. Researchers indicate that nearly 50% of all ERP system

implementations worldwide run into problems and failed to achieve their objectives [2] [22]. Studies suggest that the cost of ERP system deployment is roughly five times the actual cost of the ERP software, and the “drift” in implementation, if allowed to occur and continue, can threaten the very survival of firms [14]. In addition, there is also growing evidence that failure to adapt the ERP system implementation process to the national culture of the deployment location leads to projects that are expensive and late [10] [11]. This suggests that it is imperative that firms are cognizant of the challenges resulting from cross-border ERP system deployments.

This research study uses a synthesis of ERP literature to examine the moderating effect of the implementation process on the relationship between implementation of an ERP system and firm performance. The impact of CSFs on the implementation process are investigated in a cross-cultural context; the specific regions under study being North America, Europe, and Asia as they account for the bulk of ERP system deployments. The CSFs identified from literature in each of these three regions are classified into an ERP life cycle model [15]. Differences in CSFs across cultures are examined using Hofstede’s national cultural dimensions model [7] [8]. A theoretical framework that ties together the relationships discussed above is presented in the figure below.

FIGURE

Relationship between ERP System Implementation and Performance as moderated by CSFs in the Implementation Process

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LITERATURE REVIEW

Evolution of ERP Systems

The basic of MRP has existed for decades. It was, however, with the advent of commercially available computers in the 1960s that MRP was recognized as a viable production-control technique. MRP systems focused on getting materials to the right place in a timely manner. These systems use a master schedule to determine the timing of finished products and calculate

ERP System Implementation Performance

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the lead-time and required quantities from the bills of materials to time-phase parts into the production operations. Thus, only materials needed to complete the production schedule are ordered, regardless of the demand pattern of sales or mix of products in the production process [4].

MRP looked at material planning – one aspect of resources required to meet customer demand. In the 1970s and the 1980s, MRP II took that next step, not only considering the material requirements, but labor, capacity, and financial resources as well, thus eliminating the "order launching" inefficiencies that result from reacting only to calculated quantities. MRP II systems also facilitated top management strategy and planning through inclusion of activities such as business planning, and sales and operations planning [18] [20].

In the early 1990s, ERP systems integrated MRP II into other functional areas such as

accounting, finance, marketing, sales, distribution, and human resources. ERP systems capture the essence of business processes and focus on solving business problems using a combination of technology tools and best business practices [18] 19]. In the early 2000s. ERP systems, aided by Internet technologies, were extended beyond the firm to include intra-firm activities such as supply and customer management [6].

Hofstede’s Cultural Dimensions Model

Researchers indicate that most problems in cross-border ERP system deployments can be traced to national culture differences among CSFs impacting the implementations process 5] [11]. The best known model for studying national culture differences is Hofstede’s national culture

dimensions model [7] [8]. In this research study Hofstede’s model provides the backdrop against which CSFs that impact the implementation process are examined.

Hofstede’s national culture dimensions model is based on differences in values and beliefs regarding work goals and thus has implications for business by providing a clear relationship between national and business cultures. Hofstede uses five dimensions to describe national cultures. These values address issues of: power distance – expectations regarding equality of people; uncertainty avoidance – typical reactions to situations considered different and

dangerous; individualism/collectivism – the relationship between the individual and the group in society; masculinity/femininity – expectations regarding gender roles; long-term Orientation – a basic orientation towards time [7] [8]. Hofstede identified the first four cultural value dimensions in a study of thirty-nine IBM subsidiaries throughout the world. Later research by Hofstede and others added to the number of countries studied and introduced the fifth dimension, long-term orientation. ERP research indicates that Hofstede’s culture manifestations provide a basis for modeling and explaining the critical determinants of national culture differences that affect implementations [11].

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METHODOLOGY

The high failure rate of ERP system deployments requires a better understanding of the various CSFs that facilitate the ERP implementation process in different countries. An extensive review of ERP literature yielded a number of research studies that focused on CSFs in different national settings. Further perusal yielded six studies that could be considered representative of the three regions under study - North America, Europe, and Asia. The firms that formed part of the sample in each of these six research studies are of different sizes and encompass a range of industries. The above to a large extent mitigates the effect of industry and firm sizes on the CSFs

influencing the ERP implementation process. The CSFs from each of these studies are first categorized into an ERP life cycle model. Differences in these CSFs are then examined using Hofstede’s national cultural dimensions.

CSFs AFFECTING THE ERP SYSTEM IMPLEMENTATION PROCESS

A survey investigation of critical management issues in ERP system deployments in Canadian firms identified major obstacles that impede the implementation process [12]. The findings from this study reveals that firms faced difficulties in ongoing project management such as problems in transition to new systems, unavailability of skilled people, high turnover of key project persons, cost escalation, difficulties in estimating project requirements, significant resistance from staff, coordination between functional groups, lack of top leadership support, and knowledge gap between implementers and users. Firms also faced problems in ensuring the availability of adequate infrastructure facilities to facilitate deployments such as incompatibility of systems and lack of qualified people to configure the system to firm-specific needs. Training activities suffered due to insufficient budgets, logistics, lack of computer saaviness, lack of quality information, high turnover of people, and geographical dispersion of activities. This in turn adversely affected testing and quality assurance activities concerning interaction with vendors, and module and integration testing. Other problems include lack of customer

awareness, the extent of customization and deployment, organizational changes, and employee morale. The findings further suggest that the respondent firms in the study’s sample focused more on behavioral and management implementation issues.

Another case study that examined ERP system deployments in US firms identified CSF

categories that firms use to facilitate their ERP implementation process [16]. Firms emphasized strategic initiatives by stressing CSFs such as stimuli, formulation scope, decision making, and strategy-led deployments. Adaptation, efficiency, knowledge base and external information use are some of the CSFs that helped foster organizational learning processes. Firms gauged their cultural readiness with the help of CSFs such as change agents and leadership, risk aversion, open communications, and cross-training. Firms also focused on leveraging the IT underlying ERP systems as well as developing network relationships – inter-organizational linkages and cross-functional cooperation. Firms typically instituted change management programs (pattern of change, management readiness to change, scope of change, management of change) as well as

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process management initiatives (process measurement, tools and techniques, team based) undertaken. The study’s findings suggest that firms which adopt a cautious and evolutionary CSF-based implementation approach successfully deploy their ERP systems. On the other hand, firms that do not focus on CSFs and adopt a revolutionary project scope face deployment

failures.

A survey study on ERP implementations in Korean firms indicates that three broad CSF

categories determine the success or failure of ERP system deployments [9]. Firms should ensure organizational fit by focusing on matching the functionality of their business processes with those embedded in the ERP system. Korean firms typically focus on ERP adaptation activities such as customization, extension, and modification of their system. In addition, firms also undertake process adaptation through judicious management of organizational change and resistance. The findings from this study reveals that organizational fit of the ERP system is critical for deployment success and that both, ERP and process adaptation, interact with

organizational fit to impact performance. Beyond a certain level of organizational fit, however, more ERP adaptation lowers the chances of implementation success. This suggests that a process adaptation is more viable approach to ensure implementation success as compared to ERP adaptation.

A case study of ERP system deployments in Singapore hospitals identified ERP misfits that arise from country, firm, and business-specific requirements that are not matched by ERP system capabilities [21]. The study classified ERP misfits into three categories. Data misfits arise due to incompatibilities between organizational requirements and the ERP system in terms of data format and data relationships. Functional misfits result from incompatibilities between organizational requirements and ERP systems in terms of processing procedures.

Incompatibilities between organizational requirements and ERP systems in terms of presentation formats and the information content give rise to output misfits. The study’s findings suggest that the embedded business models in ERP systems do not reflect the Asian context as they typically reflect a bias towards Western business practices. The findings further suggest that ERP misfits can primarily be attributed to tacit organizational requirements and processes.

A case analysis of ERP system deployments in the UK identified various CSFs that could lead to an ERP implementation failure [1]. The study’s results indicate that firms face problems due to anxiety among employees resulting from reduction in manpower due to the ERP system

deployment. Other problematic issues identified in their study include scope and focus creep, underestimating the role of communication, poor progress and performance measurement, lack of ownership and transference of knowledge, tendency to isolate IT from business affairs, and lack of preparedness in the IT function. The study’s findings reveal that the following CSFs play a major role in facilitating ERP system implementation successes – having a business case, benchmarking against best practices, implementation strategy adopted, project management infrastructure, change management procedures and processes adopted, business process

reengineering to accommodate ERP functionalities within business operations, and managing the actual ERP installation.

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A cross-country comparative case study of ERP system deployments in the UK and Sweden identified CSFs as being crucial to successful implementations [11]. The study suggests that CSFs such as the amount of training imparted, degree of end user involvement, degree of customization involved, user resistance, variations in ERP system functionalities and local business practices, and inflexibility of the ERP system, impact the implementation process. The study’s findings further suggest that violations of national cultural norms underlie the mis-application of CSFs and cause deployment failures.

NATIONAL CULTURE ISSUES IMPACTING CSFs IN THE ERP IMPLEMENTATION PROCESS

The CSFs identified in the six research studies can be broadly classified into an ERP life cycle model. The ERP life cycle model comprises of four phases. The chartering phase concerns decisions defining the business case and the solution constraints present. Getting the system up and running constitutes the project phase. In the shakedown phase the ERP system stabilizes, software problems are eliminated and normal operations are undertaken. The onward and upward phase involves maintenance and the enhancement of the system and relevant business processes to fit the evolving needs of the firm [15] [17]. The Table below shows the CSFs from the six research studies classified into the four phases of the ERP life cycle model. The project and the shakedown phases represent the actual implementation of the ERP system and are hence emphasized in this study.

TABLE

Classification of CSFs into the ERP Lifecycle Model

Research Chartering Project Shakedown Onward &

Study Phase Phase Phase Upward Phase

North America (Anglo Cluster)

Motwani strategic cultural readiness learning capacity et al. (2002) initiatives

process learning type change management

management IT leveragability & knowledge-sharing

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Research Chartering Project Shakedown Onward &

Study Phase Phase Phase Upward Phase

Kumar product, project ongoing shakedown challenges et al. (2001) manager, impl. project

partner selection management organizational

criteria change

project planning training

project team infrastructure

constitution

s/w configuration &

institutionalization

testing & quality

assurance

Europe

(Anglo/Nordic Cluster)

Al-Mashari anxiety resulting scope and focus progress &

and Zairi from reduction in creep performance

(2000) manpower measurement

role of communication lack of ownership &

transfer of knowledge

isolating IT from

business

lack of preparation in

IT function

Krumbholz and inflexibility of system increased work

Maiden (2001) load

training non-user friendly

Asia

(Far Eastern Cluster)

Hong and organizational fit ERP adaptation & organizational Kim (2001) process adaptation resistance

Soh et al. (2000) data misfits functional (control & output misfits

functional (access) operational) misfits

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Studies have used five national culture dimensions to group countries by clusters [7] [8]. Country clusters are groups of countries, such as North American, European, and Asian with more or less similar country patterns. Though, countries may vary within these clusters, such groupings based on the five value dimensions are useful for condensing cultural information. The value

dimensions for the Anglo cluster (North America) are – low to medium on power distance, low to medium on uncertainty avoidance, high on individualism, medium to high on masculinity, and low to medium on long-term orientation. The value dimensions for the Anglo/Nordic cluster (Europe) are – low on power distance, low on uncertainty avoidance, medium to high on individualism, low to medium on masculinity, medium on long-term orientation. The value dimensions for the Far Eastern cluster (Asia) are – medium to high on power distance, high on uncertainty avoidance, low on individualism, medium to high on masculinity, and high on long-term orientation [7] [8].

A perusal of the CSFs in the project and the shakedown phases in the studies pertaining to the European region indicates that firms typically reported high project and focus creep. This is due to the influence of the low power distance and medium-term orientation dimensions

characteristic of European countries. In low power distance cultures, leadership styles tend to be participative in nature with decentralized decision making. This to a large extent is incompatible with the demands of a medium-term orientation that expects quick results from ERP system deployments and hence leads to increasing project and focus creep.

The lack of ownership and transference of knowledge is influenced by the low power distance, medium to high individualism, and medium-term orientation dimensions. Low power distance discourages an autocratic and hierarchical mode of leadership that is necessary to exercise tight control over the implementation process. A medium to high individualism orientation inhibits team bonding and prevents the transfer of knowledge among team members. A medium-term orientation expects immediate results from ERP deployments whereas ERP research suggests that benefits accrue to firms over the long-term.

Low uncertainty avoidance leads to poor progress and performance measurement in the ERP system implementation process. In low uncertainty avoidance cultures there is less need for formalization and standardization and there is an inherent dislike of rules and regulations. This prevalence of ambiguous nature of control mechanisms is incompatible with the relative inflexibility of the ERP configuration. The increased workload and the long learning cycles associated with the ERP system deployment is influenced by the low to medium masculinity dimension where emphasis is more on the quality of life rather than life revolving around work. In Asian ERP implementations, firms typically prefer the adaptation of the ERP system to process adaptation to handle data misfit issues. This is due to the high uncertainty avoidance dimensions characteristic of Far Eastern cultures. Here, firms are risk-averse and prefer the maintenance of the status quo and so prefer customization that would tailor the ERP system to fit their existing business processes. The high resistance to organizational change and functional misfits are influenced by the medium to high power distance and high uncertainty avoidance dimensions. Firms prefer large organizations with tall hierarchies and formalized and

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standardized procedures are the norm. The deployment of the ERP system, on the other hand, forces adoption of a process-oriented culture and favors flatter organizational structures.

The low to medium uncertainty dimension among firms in the North American region results in a relatively high tolerance to risk and a preference for open communications. ERP systems use a common database to make information available throughout the firm. Firms here prefer change management – process adaptation rather than ERP adaptation. This is due to the influence of the low to medium power distance dimension, which encourages a participative type of management style and decentralized decision-making. The focus for firms on harnessing technology to

improve efficiencies points to a systematic, rational, and logical way of thinking and working, characteristic of the low uncertainty avoidance dimension where performance and

competitiveness are valued work attributes.

The high turnover rate of people working on ERP system deployments is due to the high individualism dimension wherein the human resource function is tailored to reward individual performance and extrinsic rewards act as powerful motivators. The lack of commitment by top management and the difficulties encountered in the coordination between functional divisions is a result of the short-term orientation of managers who expect quick and tangible results from ERP systems. In addition, the high individualism dimension prevents the emergence of

teamwork essential for achieving inter-divisional coordination. The failure of implementations to meet project deadlines and comply with training and quality assurance procedures reflect the tight project deadlines of ERP system projects thus underscoring the concept of ‘time is money’ characteristic of this region.

DISCUSSION

The cross-cultural analyses of the CSFs identified in ERP system implementations in different national contexts suggest that CSFs that affect the ERP implementation process vary with different national cultures. This underscores the need for ERP vendors and consultants to tailor their implementation processes to different national cultural needs instead of adopting a ‘one size fits all’ standard implementation process. The study’s findings also suggest that different CSFs are important in different stages of the ERP system implementation process. Thus, categorizing CSFs into the various stages of the ERP life cycle would allow firms to prioritize and focus their attention on those CSFs that are relevant and pertinent in the different implementation stages. Future research could consider the interactions between organizational and national culture dimensions. The use of more descriptive, case, and surveys studies that examine ERP system deployments across different firm sizes and industries, in a cross-cultural context, would lend validity to this study’s findings. Also, empirical testing of the model could lead to linking the ERP life cycle and Hofstede’s models with the standard implementation model of ERP vendors so that an integrative framework for ERP system implementations emerges.

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REFERENCES

[1] Al-Mashari, M. & Zairi, M. The Effective Application of SAP-R/3: A Proposed Model of Best Practice. Logistics Information Management, 2000, 13 (3), 156-166.

[2] Buckhout, S., Frey, E. & Nemec Jr. J. Making ERP Succeed: Turning Fear into Promise.

Technology, 1999, 2nd. Quarter, 60-72.

[3] Christiaanse, E. & Kumar, K. ICT Enabled Coordination of Dynamic Supply Chain Webs.

International Journal of Physical Distribution & Logistics Management, 2000, 30-3/4, 268-285. [4] Chung, S.H. & Snyder, C.A. ERP Adoption: A Technological Evolution Approach.

International Journal of Agile Management Systems, 2000, 2 (1), 24-32.

[5] Davison, R. Cultural Complications of ERP. Communications of the ACM, 2002, 45(7), 109-111.

[6] Gould, L.S. ERP: Complexities, Ironies, and Advances. Automotive Design & Production, 2002, 114(7), 44-46.

[7] Hofstede, G. Culture’s Consequences: International Differences in Work-Related Values,

Beverly Hills, CA: Sage, 1980.

[8] Hofstede, G. Cultures and Organizations: Software of the Mind, New York: McGraw-Hill, 1997.

[9] Hong, K.K. & Kim, Y.G. The Critical Success Factors of ERP Implementation: An Organizational Fit Perspective. Information & Management, 2001, 40 (1), 25-40.

[10] Huang, Z. & Palvia, P. ERP Implementation Issues in Advanced & Developing Countries.

Business Process Management Journal, 2001, 7(3), 276-284.

[11] Krumbholz, M. & Maiden, N. The Implementation of Enterprise Resource Planning Packages in Different Organizational and National Cultures. Information Systems, 2001, 26 (3), 185-204.

[12] Kumar, V., Maheshwari, B. & Kumar, U. An Investigation of Critical Management Issues in ERP Implementation: Empirical Evidence from Canadian Organizations. Technovation, 2001, 1-15.

[13] Mabert, V.A., Soni, A. & Venkataramanan, M.A. Enterprise Resource Planning Survey of US Manufacturing Firms. Production and Inventory Management Journal, 2000, 41 (2), 52-58. [14] Mabert, V.A., Soni, A. & Venkataramanan, M.A. Enterprise Resource Planning: Managing the Implementation Process. European Journal of Operational Research, 2003, 146 (2), 302-314.

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[15] Markus, M.L. & Tanis, C. The Enterprise System Experience: From Adoption to Success. In: Zmud, R. (Ed.), Framing the Domains of IT Management: Projecting the Future Through the Past. Ohio: Pinnaflex Educational Resources Inc., 2000.

[16] Motwani, J., Mirchandani, D., Madan, M. & Gunasekaran, A. Successful Implementation of ERP Projects: Evidence from Two Case Studies. International Journal of Production

Economics, 2002, 75, 83-96.

[17] Nah, F.F, Lau, J.L. & Kuang, J. Critical Factors for Successful Implementation of Enterprise Systems. Business Process Management Journal, 2001, 7 (3), 285-296.

[18] Rondeau, P.J. & Litteral, L.A. Evolution of Manufacturing Planning and Control Systems: From Reorder Point to Enterprise Resource Planning. Production and Inventory Management Journal, 2001, 42 (2), 1-7.

[19] Sadagopan, S. ERP: A Managerial Perspective. New Delhi: Tata McGraw Hill, 1999. [20] Schorr, J.E. Purchasing in the 21 st. Century. NY: John Wiley & Sons, Inc., 1998. [21] Soh, C., Kien, S.S. & Tay-Yap, J. Cultural Fits and Misfits: Is ERP a Universal Solution?

Communications of the ACM, 2000, 43(4), 47-51.

[22] Umble, E.J. & Umble, M.M. Avoiding ERP Implementation Failure. Industrial Management, 2002, January/February, 25-33.

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