Challenges of ERP implementation critical failure factors in Iranian industries
In today’s competitive business environment, companies try to provide customers with goods and services faster and less expensively than their competition. How do they do that? Often, the key is an efficient, integrated information system. An Enterprise Resource Planning (ERP) system can help a company integrate its operations by serving as a company-wide computing environment that includes a shared database—delivering consistent data across all business functions in real time. As Hitt, Wu, and Zhou (2002) stated, “the standardized and integrated ERP software environment provides a degree of interoperability that was difficult and expensive to achieve with stand-alone, custom-built systems”. Implementing of the ERP, as other information systems, faces several issues and challenges. It is interesting that only 63percent of organizations consider their ERP project as a “success” around the world in 2014, and this rate is much lower for Iranian organizations, which ERP is new to them and have failed in most of the cases. According to Helo et al.(2008), “Unlike other information systems, the major problems of ERP implementation are not technologically related issues such as technological complexity, compatibility, standardization, etc. but mostly [about] organization and human related issues like resistance to change, organizational culture, in compatible business processes, project mismanagement, top management commitment, etc.”. Top ten issues of ERP implementation are:
- Lack of senior manager commitment.
- Ineffective communications with users.
- Insufficient training of end-users.
- Failure to get user support.
- Lack of effective project management methodology.
- Conflicts between user departments.
- Attempts to build bridges to legacy applications.
- Composition of project team members.
- Failure to redesign business process.
- Misunderstanding of change requirements.
In this paper, after describing ERP concepts and literature, we introduce the most important issues and challenges of implementing of an ERP system, specifically in large organizations and then through an exploratory research by using a Likert scaled questionnaire which its respondents were 40 employees and experts in one of the large organizations in Iran, Isfahan Telecommunication, we determine the most challenging issues and problems of implementing an ERP system that results in failure of implementation and after that we suggest some solutions to overcome the issues of implementing an ERP system.
Enterprise Resource Planning was born from its predecessor, Manufacturing Resource Planning (MRP). During its formative years in the 1960s, MRP was referred to as
Manufacturing Requirements Planning. MRP and the first
ERP systems were designed as an organizational and scheduling tool for manufacturing firms. The function of the next generation of ERP software systems stretched beyond the confines of what it could do for an individual manufacturing firm’s internal use, and began including customers and suppliers. ERP provides two major benefits that do not exist in non-integrated departmental systems: (1) a unified enterprise view of the business that encompasses all functions and departments; and (2) an enterprise database where all business transactions are entered, recorded, processed, monitored, and reported. This unified view increases the requirement for, and the extent of, interdepartmental cooperation and coordination. But it enables companies to achieve their objectives of increased communication and responsiveness to all stakeholders. ERP allows different departments with diverse needs to communicate with each other by sharing the same information in a single system. ERP thus increases cooperation and interaction between all business units in an organization on this basi. Its goals include high levels of customer service, productivity, cost reduction, and inventory turnover, and it provides the foundation for effective supply chain management and e-commerce. It does this by developing plans and schedules so that the right resources—manpower, materials, machinery, and money are available in the right amount when needed.
- Challenges of ERP implementation
Implementing an ERP system is not an inexpensive or risk-free venture. In fact, 65% of executives believe that ERP systems have at least a moderate chance of hurting their businesses because of the potential for implementation problems. According to the Panorama Consulting’s 2014 ERP report, only 63-percent of respondents consider their ERP project a “success.” Nearly one quarter of respondents (21percent) are “neutral” or “don’t know” if their project was a success, indicating that organizations might not have created a business case, conducted a post-implementation audit or communicated about project results. Nearly one in five respondents (16-percent) indicates that their organization’s ERP project was a failure. Despite ERP’s promises to benefit companies and a substantial capital investment, not all ERP implementations have successful outcomes. ERP implementations commonly have delayed an estimated schedule and over run an initial budget. Furthermore, the literature indicates that ERP implementations have sometimes failed to achieve the organization’s targets and desired outcomes. Most of the researches reported that the failure of ERP implementations was not caused by the ERP software itself, but rather by a high degree of complexity from the massive changes ERP causes in organizations.
Carton and Adam (2003), who reported four case studies of ERP implementation in Irish manufacturing firms, indicate a number of issues for ERP implementation as below:
- Shifting to ERP can be a painful learning process, requiring unlearning old ways of working.
- Subsidiaries of multinational firms are often faced with changes imposed, rather than designed.
- Implementation of ERP systems usually lead to integration of data, which has the effect of centralizing ownership, away from the multinational subsidiary.
- IT support also is often centralized (as a way to reduce IT cost), while responsibility for accurate data entry is shifted back to the point of entry, increasing the responsibility and work of the subsidiary.
- ERP implementation can often change the balance of power within organizations, usually favoring central administration at the expense of subsidiaries.
- ERP failure
Despite the popularity of ERP, the failure rate of ERP implementation remains high. Reports indicated that ERP failure rates remain in the 67%–90% range. 35% of ERP implementations are canceled, with the remaining 65% of them resulting in cost and scheduling overruns averaging 178% and 230%, respectively. According to another survey, 70% of ERP implementations fail to deliver anticipated benefits. Some surveys show that failure is an integral part of ERP projects and success cannot be guaranteed even in best desirable situations. There are so many reports that ERP projects have failed in some well-known companies like Hershey, FoxMeyer, Nike, etc. Also ERP failure could lead businesses to bankruptcy or jeopardizing their core operations. However, there is no unique definition for failure or success in ERP system implementation. Some today success may be tomorrow failure or vice versa. Each author describes failure or success form different viewpoint, but it can be classified in two categories. Some authors focused on the project itself and others focused on achieved outcomes.
The first category defines success or failure by focusing on some project factors like project cost or time but other ones define success as a result of achieving implementation goals like integrating organizational information, better decision making, improving inter-organizational communications and decreasing operational bottlenecks. On the contrary, lacking of each factor is defined as a failure. Researchers in the second category, which considered achieved outcomes had a contingency look to success or failure and classified their definitions in different levels. For example, Heeks divided success or failure in implementing information systems projects into one of the three evaluated outcomes: (1) total failure: ‘‘an initiative never implemented or in which a new system was implemented but immediately abandoned’’, (2) partial failure: ‘‘major goals are unattained or in which there are significant undesirable outcomes’’ and (3) success: ‘‘most stakeholder groups attain their major goals and do not experience significant undesirable outcomes’’. After that, Gargeya and Brady classified ERP failure implementation in two levels: complete failure and partial failure. Complete failure occurs when the project is canceled before full implementation or is omitted from operation. Another level of failure in ERP projects is partial failure. It could lead organizations to increase implementation costs over the estimated, prolonged period of project, non-compliance of implemented processes with agreed ones, inability to tackle the determined goals and lack of adequate return on investment (ROI) or user satisfaction. Most of scholars paid more attention to implementation procedures and also provided some recommendations about preventing ERP failures. One of the first articles that has been published about analyzing ERP failures returned to 2002. In this work, authors mentioned that lack of education, BPR, project management, top management support and unrealistic expectations of users could lead companies to fail. After that, some authors concurrently investigated CSFs and CFFs while others just examined ERP failure factors. In addition, some researchers have focused on specific countries or businesses. Most of the widely published papers in the field have been reviewed, in the paper and the relevant results are summarized in Appendix 1.
- Iran ERP market
The first significant ERP system implementation in Iran dates back to implementing Oracle E business suite in Isfahan steel company. Since then, several large enterprises tried to use such solutions. Based on a report that published in 2008, 42 vendors were active in Iran ERP market as a solution provider or implementer. 43% of these companies were agent of international and famous ERP providers and other ones were the local companies that have their own solutions. Although there is no clear report about the activity of international solution providers or their third party agents in Iran, but some famous enterprises in automotive, mining, oil, gas, mill and consumer products have implemented and used such solutions. SAP, Oracle, IFS and Sage take the majority of international ERP market share in Iran. On the contrary, there are many local vendors that have deployed their own solutions in Iranian companies. But, there are some considerations about ERP solutions of these companies. At first, they were developed around local practices and suffer from lack of best practices. Lack of proper integration and knowledge of business process reengineering are other problems of local solutions. Most of these ones do not include important modules in ERP systems like Production Planning and Material Requirement Planning. In addition, they do not provide multicurrency and multi lingual support.