Research Findings: A Framework for Analyzing the Adoption of ERP in Indian Organizations

The ERP implementation process in Indian companies can be modeled as a three-stage process, as shown in Figure 2. These stages describe different aspects of the implementation and subsequent use of the software. The Planning Stage refers to the activities that are performed before the ERP software is actually implemented. These activities address various requirements of business and IS strategy planning as well as project planning. The Implementation Stage describes different issues and activities that must be addressed once the implementation process is under way. The Post Implementation Review Stage is concerned with analysis of benefits and changes accruing from the ERP system. It also includes an analysis of key knowledge and skills acquired from the implementation process, and their application to subsequent rounds of implementation of the software.

Figure 2: Model for adoption of ERP in Indian organizations

This framework also has implications for managers who are involved in planning and executing the ERP implementation process. Various aspects characterize each stage of the model. A study of these aspects reveals specific strategies for managing and controlling each stage, which can have a significant impact on the ERP adoption process. Managers need to address issues such as vendor selection, process re-engineering, personnel training, change management and benefits analysis. We describe below, the different stages of the framework, and the management implications for addressing the requirements of each stage.

Stage 1: Planning Stage

The decision to adopt ERP software is usually a part of the strategic information systems plan. The planning process is carried out within the framework of four factors.

Drawing up a Business Case for ERP

ERP was implemented for three reasons. For most of the companies that we studied, the decision to implement ERP was part of a larger attempt towards reducing costs and increasing market share and profitability. They expected that the software would improve their critical processes and help achieve the critical success factors for the business. For example, two companies were low cost producers in their industries and wanted to use ERP for better information management regarding their inventory, which would help reduce their inventory levels. It is essential that there be a clear idea of the deliverables from the ERP software. For example, there should be a detailed plan for the processes that would need a redesign and the elements that would be changed. In this context, we observed that there was reluctance on part of the companies to re-engineer their processes using the "best practices" feature of the software. Most companies planned to customize the software to their needs, and did not want to change their processes. A second reason for implementing ERP was the presence of plenty of slack resources, adopted ERP as a result of similar actions on part of their competitors. They were not very clear as to the deliverables they wanted from the use of the software. A third reason was that some organizations were looking for Y2K compatibility and to upgrade their IT infrastructure. They were primarily concerned with the technical design of the software, its utility as an integrated transaction processing system and its value in streamlining the data storage and retrieval process in the organization. Awareness of the latest ERP technologies and application to the business is desirable in such cases.

Characteristics of the Business

More than 90 percent of the companies we studied were categorized as large companies, and had a turnover greater than 5,000 million Indian Rupees (INR). They operated out of many different locations, were regarded as innovative, and were among the first in their industries to introduce the ERP software. For many of the companies, the product or service was not tangible, but based on information. In most organizations, Financial Accounting & Control was the first module to be implemented, followed by the Materials Management, Sales & Distribution and Production Planning. Very few companies implemented the Human Resource Management module in the first phase but many of them planned to do so in the next phase.

A prominent characteristic of the organizations was that the majority of them needed extensive information interchange among processes. This implied the requirement for process integration across different functions. Therefore, the internally focused modules such as materials management and production planning modules were among the first to be implemented in these companies. This finding was in support of the oft-quoted reason for ERP implementation, namely, the attempt to integrate information flows across of islands of information within the organization (Davenport 1998, Wagle 1998; Markus et al., 1999). In such cases, it is essential to have information about problems with existing processes and the nature of existing information flows such that the rationale and plan for re-engineering can be developed. A few organizations were such that informal (word of mouth, for example) communication was common; in these companies, ERP was one of the means to formalize the communication processes.

Assessing the IT Readiness of the Organization

Most of the companies had a separate MIS department prior to the start of the implementation of the ERP software. The department performed routine maintenance jobs, in addition to developing software for different functions and departments. In most of the companies, only the basic accounting processes were automated before the introduction of ERP. In some of them, inventory-recording functions were also computerized. A few of them had some decision support applications for forecasting, prior to ERP adoption.

However, the MIS function was not considered to be a very important one, prior to the implementation of the ERP software. Consequently, the head of the MIS department was not a member of the top management team and did not participate in strategic planning exercises. Since ERP is a highly visible and technically very complex software, it is essential to radically change the status of the IS function as part of the manpower planning operations. Hence, restructuring and new recruitment for the IS sometimes becomes necessary. These companies instituted new CIO positions. These positions were powerful and visible, and took charge of the implementation process. IS professionals, trained in both technology and business were recruited. In some organizations, the existing IS head was given greater powers and made responsible for heading the implementation process. In a few companies, a senior functional executive was delegated to manage the implementation process, to whom the existing IS head reported.

Eighty percent of the companies that we studied had different PC-based FoxBase or dBase applications for different departments, rather than client/server systems. Consequently there were significant changes in the IT strategy and architecture as a result of ERP implementation. These changes involved migration of data from legacy systems into an integrated platform, integration of application programs into the enterprise system, and connection of separate servers and terminals into a single networked configuration. There was a need for training and technical skill acquisition such that the new systems could be maintained.

Project Planning

There are three aspects to project planning. The first relates to project size. For all the companies, the ERP project was much larger than any previous IS project in terms of the scale of resource commitment, range of operations affected, and the number of people involved in development and technical support. Therefore, the risk of failure was perceived to be high. Therefore, there was a need for planning for resources such that increases in the IT budget could take place. A second aspect was the recruitment of external consultants to help with software configuration, customization and expertise transfer. In this context, it is necessary that consultants be reviewed and selected such that costs and requirements can be accurately estimated. The third aspect has to do with the formation of the ERP implementation project team, and allocation of executives from the functional areas to the project team. The best functional executives were allocated to the ERP project team. A quarter of the organizations felt that this left the other functional areas inadequately staffed. There is a need to plan for the temporary transfer of employees so understaffing does not occur in the functional areas.

Stage 2: Implementation Stage

The second stage of the ERP process is the Implementation Stage. Two major aspects are found to describe this stage.

Management of Technical Aspects

For more than 80 percent of the organizations, the ERP system was significantly different from their existing systems, and required new and advanced technical skills. Only a quarter of the companies felt that their present crop of IT people were qualified to handle the sophisticated technology. Hence the implementation process was at all times a joint exercise between external consultants and company employees in almost all of the organizations that we studied. These consultants also trained the IS professionals, who carried out the post implementation maintenance of the system. This was a double-edged sword, because ERP skills are highly marketable and many organizations were worried about increased dependence on employees whose potential rate of attrition could be very high. Such instances have been reported in several studies conducted by SAP. In this regard, there is a need for managing the expectations of employees who are involved in the ERP project, such that they stay on during the subsequent activities of system use and maintenance. Moreover, those IS professionals who were not directly involved in the ERP project or had not trained on the software, were often cynical of the possible benefits of the projects. In almost half of the cases they refused to co-operate. Sometimes they actively tried to derail the implementation process. This was attributed to a lack of motivation and a feeling of alienation on part of these employees. Hence, there is a need for making sure that these employees indirectly support the project requirements and help in the overall effort.

Organizational Change Management

ERP resulted in significant changes at various levels in all the organizations. Task definitions changed and new skills were required for many employees, as different tasks were combined together. About half of the people we interviewed, felt that their responsibilities had increased. Reorganization of tasks resulted in changes in the reporting structure in more than half of the companies. In most cases, there was greater transparency as a result of changes in financial reporting practices. Such changes have some implications for managers. It is essential to communicate the rationale for adopting ERP and the accompanying changes. Most companies experienced that technical changes were relatively easier to institute because they required hard skills that could be developed or acquired. Employees found it more difficult to accept the new reporting structures, re-organized processes and new ways of working. These transformations were even more difficult to accept quickly because of the magnitude of change involved. Almost every important function was altered in some way. Senior managers were apprehensive that they were not able to communicate clearly enough to the rest of the organization, the nature and rationale behind the changes that were necessitated by the new software. This increased the chances of the changes being rejected. Hence, the primary risk of failure of the ERP system stemmed from human change acceptance issues, and not technical problems.

Stage 3: Post Implementation Review Stage

The final stage in the ERP implementation process is the Post Implementation Review Stage. This stage consists of activities of the following broad themes.

Process Changes

For half the organizations, there were significant changes in business processes. The remaining companies customized the ERP software to the requirements of their existing processes. In a third of the cases, there was greater understanding of task requirements because of multi-tasking and the combination of different stages of tasks into single steps. In addition, there were enhancements in the overall technical capacities of employees and IS professionals. A major concern in this stage is that the new processes do not stick and employees tend to go back to the previous processes. Hence, there is a need to put in place strategies for formalizing new processes and preventing backsliding to the old ones. Organizations need to monitor and articulate the benefits of the ERP system to their employees such that the new processes are maintained.

Operational Benefits

A little more than half the organizations we studied experienced tangible, operational benefits as a result of ERP implementation. These benefits were in terms of improved customer service, reduced costs, better inventory management, and the facilitation of real time processing and availability of financial and other information. The most significant change in many organizations was that they had moved from being individual function-driven to process-driven. This was because consequent to task reorganization and multi-skilling, employees could visualize the entire process, rather than just a small part. In supporting findings, respondents felt that there was improved integration between different processes, and that there was improved job design as a result of the use of the ERP software. Most of the companies also felt that the software helped reduce the number of overlapping activities and enhanced managers' understanding of their tasks and roles. These companies expected that the operational benefits would translate into financial benefits also. However, there were no attempts to analyze the direct impact of these benefits on the company's financial performance. In such cases, the implications for managers is that the organization should make attempts to analyze the financial implications of these benefits in order to justify continued investments in ERP. This is especially important because 90 percent of the companies in our study were found to have carried out a phased implementation of the software.

The remaining companies did not perceive any operational benefits after the ERP implementation. The only perceived changes were increased structure and method in their processes. They felt that the software was difficult to navigate, there were too many complex screens and it took a long time to complete the tasks.

Access to Information and Increased Responsiveness

Almost all the organizations we studied, felt that there was better access to information at the point of origin, and better flow of information across different departments after the ERP software was implemented. Employees felt empowered because they could conveniently access information that was required for decision-making. This led to better decision-making and greater accountability. The management implication here is that managers should carry out continued analysis of information requirements, such that existing information availability mechanisms can be monitored for effectiveness and new information requirements can be addressed, through the ERP software.

Leveraging Experience for Subsequent Phases

One of the major purposes of ERP adoption in the developed countries has been the integration of the majority of the internal processes of companies to create a systematic structure for storing and retrieving information seamlessly across functions (Davenport, 1998). Therefore, most companies have followed the "Big Bang" method of implementation, where all the modules of the software are implemented simultaneously. In the case of Indian companies, however, it was interesting to note that 90 percent of the companies we studied, carried out phased implementation, instead of a "Big Bang" implementation. Initially, companies choose to implement only those modules, which addressed functions that they consider absolutely critical for their operations. This is done because of two reasons. First, most organizations do not want to commit the vast resources required for a big bang implementation, especially because these are significantly greater than their previous annual IT budgets. Second, ERP software requires advanced technology and is very different from the existing systems. It affects many more functions in the organization than had previous IT systems. Therefore, organizations prefer to change gradually and minimize the risks of failure. These issues have not been addressed in the literature so far.

It is interesting to note that about a third of the companies surveyed, had a well-developed IT function and first implemented ERP in their most successful and high-profile divisions. They wanted the pilot implementation to be a model for the other divisions to follow. Other organizations where the IT function was not well developed, implemented ERP in their least busy and least important division to begin with. They preferred to minimize the visibility of implementation problems and potential failure.

Organizations which adopted the phased approach, perceived themselves to be well prepared for subsequent rounds of implementation both in terms of technical preparedness and ability to articulate and communicate the rational behind the change processes. We also observed the feedback loop from the final stage to the first two stages, which indicates that learnings during the first phase are fed back such that the organization can be better prepared for subsequent phases. In this context, it is important to remember that many of the key factors of an ERP project, like manpower and resource planning and change management, are applicable to other IS projects as well. An important management implications in this regard is that organizations should develop strategies to internalize the knowledge gained from the ERP implementation process and use it for the subsequent stages and for other IS projects.

The framework been summarized in Tables 3, 4 and 5.

Table 3: Planning stage

Principal Aspects of the Stage	Description of Principal Aspects	Implications for Managers
Business Imperatives for ERP	Planned as part of a larger attempt towards reducing costs and increasing market share and profitability Expected change of processes to suite the ERP software Response to competitor's actions Technical upgradation of IS architecture	Clear idea of the deliverables from the process is desired Detailed plan for process re-engineering is required Awareness of the latest ERP technologies and application to the business
Business Characteristics	Innovators and pioneers in the industry Multiple products and facilities all over India Extensive information interchange along processes Islands of computerization and information availability	Study of problems with existing processes and the nature of information flow is required. Rationalization of information hand-offs is required.
Manpower Planning	Working with external consultants Formation of ERP project teams	Review and selection of consultants based on experience and estimated cost is necessary. Planning for the temporary transfer of employees from functional areas to the project team is essential
Impact on IT Strategy	Acquisition of radically new technologies Development of advanced technical and project management skills Change in the status of the IS function	Planning for increases in IT budget Training and technical skill acquisition plan is required Restructuring and new recruitment for the IS function is necessary

Table 4: Implementation stage

Principal Aspects of the Stage	Description of Principal Aspects	Implications for Managers
Change Management	Change in processes Change in reporting structure Change in task job definition Change in financial reporting practices	Management of Change: Communication of the rationale behind the ERP implementation process and the accompanying changes
Technical Skills	Training of existing IT personnel and recruitment of new IT personnel	Management of expectations of IS professionals not involved in the project: Motivation problems Management of expectations of IS professionals involved in the project: Attrition problems of trained IS professionals

Table 5: Post implementation review stage

Principal Aspects of the Stage	Description of Principal Aspects	Implications for Managers
Process Changes	Greater understanding of task requirements Multiple tasking and task-stage integration	Strategies for formalizing new processes and prevention of slipping back to the old ones: Monitoring and articulating the benefits
Improved Performance Along Operational Parameters	Improvement in service levels Decrease in costs	Attempts to analyze and study the effect of operational results to the financial results
Increased Responsiveness	Improved Information availability Integration across functions	Continued analysis of information requirements Strategies to increase the effectiveness of decisions
Feedback Learning for Subsequent Stages	Technical skills More effective management of the change process	Strategies to internalize the knowledge gained from the ERP implementation process and use it for other IS projects