The Implications Of The Erp Implementation Information Technology Essay

The Implications Of The Erp Implementation Information Technology Essay Enterprise resource planning systems are now a common feature of any large business; indeed, they are widely considered to be one of the most influential technological developments within the corporate workplace (Davenport, 1999). The popularity of such technology can be ascribed to the organisational benefits of implementing such systems; according to Lengnick-Hall et al (2004), for example, the introduction of such systems can improve the process flow of an organisation and provide the management of the organisation with better quality data on which to base their strategic decisions. This aids companies in their need to react in a timely and flexible manner to changes in the business environment (Zheng et al, 2006). The popularity of the implementation of ERP systems can be seen in the fact that the ERP software market is currently one of the fastest growing e-business software markets in the world, having increased from a value of $23.6 billion in 2004 to roughly $28.8 billion in 2006 (Woodie, 2005). However, there are limitations to the benefits which can result from the implementation of ERP systems, as reflected in the failed ERP implementations at Allied Waste Industries Inc and Hershey Foods Corporation (Scott and Vesey, 2002). The rapid economic growth of the United Arab Emirates has resulted in its transformation into a sought after destination for large enterprises (ERP in UAE, 2011). This is particularly the case in Abu Dhabi and Dubai which is currently the largest trading centre in the Middle East, and whose liberal government regulations, high quality infrastructure and thriving service sector have contributed to its success (ERP in UAE, 2011). As a result of such vibrant business growth, the ERP software market in the UAE was estimated at $300 million (Dh 1.1 billion) at the end of 2009 and is projected to grow further (Askari, 2008). This essay focuses on the implications of ERP implementation in Etihad Airways, the United Arab Emirates national airline, which was completed in 2006. The aim of the essay is to assess the implications of the new ERP system on the organisation as a whole and on its users. The essay begins with an overview of the key factors which are deemed to be important in determin ing the organisational and individual implications of the implementation of an ERP system before subsequently discussing the details of the ERP implementation in the case of Etihad Airways. The advantages and limitations associated with the new ERP system from the perspective of both the organisation and the users is then explored. A review of the studies which have been recently published in the field of ERP suggest a number of critical success factors which need to be present in an organisation to ensure that the implementation of the system yields the desired benefits to both the organisation and the users of the new system. If any of these critical success factors are absent, neither the individuals nor the organisation will reap the full benefits from the implementation of the new system. The first of these is strong leadership, or the capability of senior managers to convince the members of their organisation of the advantages of the change which will result from the ERP system implementation (Davenport, 1999). It is also important for managers to demonstrate that the implementation of the new system is motivated by market needs and that it will enable the organisation to thrive in their environment. This is corroborated by the results of a survey conducted by Zairi and Sinclair (1995) which indicated tha t effective leadership was thought to be the most important factor in large transformation efforts. The second critical success factor which has been identified is barriers to change within the organisation. If employees are resistant to the introduction of a new system, the likelihood is that the ERP system will fail to be successful. Such resistance may stem from a fear of losing power within the organisation or a resentment of authority, an issue highlighted by a study conducted by Bancroft (1996) which found that resolving political issues within an organisation was the most difficult challenge to overcome. According to Aladwani (2001), the first step to ensure a successful ERP implementation is the approval and support of key individuals and opinion leaders in the organisation. The third critical success factor is a strong ongoing communication with employees in order to engender a greater understanding of the new system (Kraemmerand et al, 2003) it is important for employees to be kept up to date with the progress of the new system in order to mitigate any confusion or employee resistance. The fourth critical success factor is the management of change and control. In particular, careful project management is important with clearly defined objectives, work plans and an ongoing overview of the progress of the project (Umble et al, 2003). This needs to be reinforced by a clear decision making hierarchy, with frequent progress reviews. The final critical success factor is the importance of organisational culture. The culture of a company influences the way in which the employees, and hence the users of the ERP system, respond to its implementation hence, the culture of the organisation needs to be adapted to incorporate the features of the new system (Wong, 2006). A new organisational culture needs to be developed which is underpinned by the trust and support of the organisations employees towards the new ERP system (Aladwani, 2001). Etihad Airways is the national airline of the United Arab Emirates and launched its services in November 2003 (AMEinfo, 2006). Etihad currently lies to guests to more than fifty destinations in Asia, North America, Australia, Africa and Europe, with its fleet of aircraft totalling 57 (AMEinfo, 2006). Its revenue in 2009 totalled 2.3 billion USD, and the airline carried more than 7 million passengers (AMEinfo, 2006). Etihad implemented its ERP system in 2006 in partnership with Oracle E-Business Suite. The ERP system focused mainly on integrating the disparate functions of the airlines financial and accounting systems, specifically, its accounts payable, fixed assets, purchasing, inventory management, accounts receivable, accounts payable, self service expenses, inventory management and purchasing and its self service procurement (AMEinfo, 2006). The project took a total of eight months to complete and consulting services were provided to Etihad throughout the process by Satyam Comput er Services (AMEinfo, 2006). The new ERP system was implemented according to schedule and on budget. The key drivers behind the decision to implement a new ERP system in Etihad Airways stemmed largely from the fact that their existing accounting and finance system was outdated and technical upgrades were not available (Etihad Airways, 2009). Furthermore, the systems support which was provided by the current software provider was inadequate, with maintenance becoming expensive. As a result, the airline was spending a significant amount of money on a system which was not adequately meeting their needs (Etihad Airways, 2009). It was therefore decided that a new, integrated software system was needed to streamline and integrate the operational and financial process within the company. The processes which were successfully integrated in the introduction of Oracle E-Business Suite met 80 per cent of Etihad Airways requirements (Etihad Airways, 2009). It enabled Etihad Airways to achieve closer integration with the applications of other business units, enable complete process automation an d provided users with a more user friendly interface supported by strong online support (Etihad Airways, 2009). The same ERP system had also been implemented by a number of other regional airlines including Oman Air. The introduction of the new ERP system had a number of positive implications for both the users of the new system and the organisation itself. According to IBS (2011), the introduction of the new system played a key role in fuelling the growth of Etihad Airways. Firstly, the better organisation and integration of different functions within the operational and financial divisions enabled the company to conduct a profitability analysis on its routes, and to improve the yield from its existing routes based on the results of break even analysis (IBS, 2011). The provision of this useful information enabled the management of the organisation to decide on new flight routes as well as saving considerable time in the preparation of monthly and annual management reports, which was assisted by the simplification of the budget creation and invoice verification processes resulting from the integration of the systems. Secondly, all revenue budgeting and monthly accounting processes were fully auto mated and their systems were fully integrated with the other monthly revenue budgeting and accounting systems which were currently in operation at the organisation (IBS, 2011). This provided users with a central store of information from which they could access past reports and users were able to develop customised reports for their daily operations with the new system. This saved considerable time since it reduced the manual input needed from users and increased work efficiency by a total of 75 per cent (IBS, 2011). Thirdly, the implementation of the new system allowed employees to access the relevant financial and operational information at any station and department. It also enabled users to generate different versions of reports and to transfer data between different versions. The lack of manual input needed for the generation of reports meant that there was greater transparency in the calculations and computations which were used, thus reducing the risk of error and enabling th e company to easily retrace its steps in the event of an error. The new system also enabled the organisation to prepare comparison and Key Performance Indicator (KPI) reports to compare metrics such as actual and projected expenditure from both the current and previous years (IBS, 2011). The benefits for the users of the new system in Etihad Airways was very positive. The key implications of the new system for the users consisted of the saving of time. Prior to the implementation of the new system, the finance department had to manually collect information from different work stations and these were combined in order to provide monthly reports for different revenue categories. The time consuming nature of the work involved meant that a total of two people were required to work on compiling reports during a period of five days (IBS, 2011). The introduction of the new system increased the work efficiency of users by 75 per cent (IBS, 2011), thus freeing up the time of users to concentrate on other tasks and also reducing the overall costs incurred by the organisation. Another key benefit for both users and the organisation of the introduction of the new system was the increased accuracy of the quality of work (IBS, 2011). Prior to the implementation of the new system, the majority of the work performed by employees was of a manual nature. There was therefore a significant risk of duplication and potential error related to human oversight Etihad Airways had lacked an integrated front end portal which could adequately support these processes with the result that much of the financial and operational data which was stored on the system was inaccurate and out of date. Therefore, the reports which were based on such data were not useful to management, and it was often necessary for employees to have to search through multiple databases in order to locate the required information. In many cases, the same information was stored in multiple databases which were not interlinked, with the result that data in one database was updated, but the data stored in other databases was not. Therefore, the introduction of the new system resulted in a much more user-friendly interface for the employees of the organisation and made it easier for them to access relevan t data to construct reports (IBS, 2011). However, despite the advantages which have been outlined above, there are a number of limitations associated with the introduction of the new system in relation to both the overall organisation and the systems users. The most obvious limitation to the new ERP system for Etihad Airways is its prohibitive cost. The results of a survey conducted by Panorama Consulting Group and based on 1600 ERP implementations worldwide (Sachdeva, 2010) found that the average cost of implementing a new ERP system is $6.2 million, which typically represents 6.9 per cent of the companys annual revenue. In addition to the one-off cost associated with the initial implementation of the ERP system, the ongoing costs of end-user training and data migration from the old system to the new system requires a considerable amount of time and money, and also results in lost business throughout that period. It is important to ensure that the benefits provided by the implementation of the new system outweigh the costs associated with the system the relatively recent introduction of the ERP system in Etihad Airways makes it difficult to determine whether this is the case. Another potential limitation associated with the implementation of the ERP system is the issue of training. The complexity of ERP systems means that adequate training is essential to ensure that users are fully prepared to start using the system and to earn their support for the project. Indeed, empirical studies have shown that investing a sufficient amount of money into user training is essential in determining the success or failure of a new ERP system. The study conducted by Gartner Consulting indicated that those companies whose training budgets for the new system constituted less than 13 per cent of the overall cost of introducing the new ERP system were significantly more likely to have an ERP system which was unsuccessful when compared to those companies whose training budget comprised a minimum of 17 per cent of the ER P implementation cost (Sachdeva, 2010). The limitations imposed on the effects of new ERP systems by inadequate training is also supported by findings in academic literature: a study conducted by Markus and Tanis (2000) explores the negative effects that inadequate user training and the consequent failure by employees to understand the functionality of the new system represented a key obstacle to the successful functioning of the new system. Furthermore, while the implications of the ERP system at Etihad Airways currently seems to be positive from both an organisational and a user perspective, the systems which are in place may be insufficiently flexible to adapt to any changes in the work flows and processes at the airline (Sachdeva, 2010). Etihad Airways is a very new airline, having only been launched seven years ago, and hence there is a likelihood that its business process will significantly change in the future whether it be through organic growth or through the acquisition of another company. There is therefore a risk that the ERP system which is currently in place may not have the flexibility to cope with changes in Etihad Airways organisational environment. The findings of this essay suggest that the implications of the implementation of the new ERP system in Etihad Airways have been overwhelmingly positive. The key benefits which have accrued to the management from the new system appear to have been a significant reduction in costs due to the reduced amount of time needed to perform activities. Furthermore, the integration of different systems has made it easier for the management to conduct different profitability analyses on airline routes, thus providing them with high quality information which they can use to inform their strategic decisions. The key benefits which have accrued to the users from the introduction of the new system also include a reduction in the amount of time needed to enter data through the elimination of the need for manual input. This has not only alleviated the tedious nature of tasks, it has also freed up users time to dedicate to other activities. The replacement of manual input with automated systems has als o reduced the risk of human error and potential duplication. The key limitations which are posed by the introduction of the new system stem from the ongoing costs associated with the maintenance and support for the new ERP system, the need for continuous training for end users, and the risk that the ERP systems which are in place are not sufficiently flexible to be able to cope with changes to the processes of the airline in the future. It is important for Etihad Airways to ensure that they take concrete steps to minimise the risk that each of these limitations will prove to be a significant obstacle to the success of the ERP system. In order to reduce this risk, it is suggested that the airline invests in continuous training for its users. While this will increase the cost burden of the ERP system, many of the findings and studies cited above have emphasised the importance of end user training and employee support in ensuring the success of a new ERP system (Markus and Tanis, 2000) and hence it is an important investment for the company to make. Furthermore, a high degree of ongoing communication needs to be put in place between management and end users of the ERP system in order to obtain users feedback on their experience of using the ERP system this will allow management to identify in a timely fashion whether the ERP system has any issues related to flexibility, thus ensuring that they are able to make any necessary changes before significant problems arise. It will also help to demonstrate the strong leadership skills of the management which, as highlighted earlier in the essay, is a critical factor in determining the successful implementation of a new ERP system.