Critical Success Factors in Erp System Implementation

Critical Success Factors in ERP System Implementation

Abstract

The purpose of this study is to define the critical success factors of ERP system implementation and to determine why these factors are critical. The research for this study is a combination of qualitative and quantitative with the qualitative focusing on the study of literature reviews and the quantitative focusing on the comprehensive analysis of the findings.

Critical Success Factors in ERP System Implementation

An ERP system is defined as an integrated, configurable, and tailorable information system what manages and plans resources and their uses within an enterprise in addition to streamlining and incorporating business processes throughout the organization (Stewart, 2000). Enterprise Resources Systems gained popularity in the late 1990’s. and it was during this time that many organization began to adopt the systems. At the time, nearly 60% of all Fortune 500 companies implemented ERP systems in order to achieve the interoperability they were lacking with the standalone programs they currently used (Stewart, 2000). By providing interoperability, ERP systems provided organizations the opportunity to improve processes and decrease operations costs. ERP systems connect distributors, suppliers, and customers in order to allow for data integration and to avoid data redundancy. It allows organizations to have a global view of data in real-time through a system that drives process improvement.

        The implementation of an ERP system is often complex and expensive. Often, an ERP system implementation is the largest investment an organization can make. Not only are there software costs, a successful ERP system implementation often requires consulting costs and sometimes training costs. Because of the costs, companies do not take the decision to implement ERP systems lightly. Cost is the biggest risk associated with ERP systems. It is estimated that the average ERP system implementation takes two years and has a total cost of $12 million (Stewart, 2000). The process of ERP system implementation occurs when ERP systems are matched with organizational processes. Often, organizational processes must be redesigned in order to fit the standards of the ERP systems. These business process designs often contribute to the high failure rate of ERP system implementation (Stewart, 2000). In addition to process redesign, there are

Given that the failure rate of ERP systems ranges from 40-60%, it is imperative that organizations do everything possible to ensure the success of an ERP system implementation (Kumar, 2000). A successful ERP system implementation requires adequate time, sufficient effort, resources, managerial involvement, preparation, commitment, and patience. Even if all of these requirements are met, failure can still occur because there is a human component of ERP system implementation that requires communication, cooperation, and teamwork. Because an ERP system implementation exhausts the resources of an organization, it is necessary for organizations to take all precautions to ensure a successful ERP system implementation. In order to prevent the failure of an ERP system implementation, many organizations have followed the Critical Success Factors for ERP Implementation (CSFs). Critical Success Factors are generalized guidelines that have been used in ERP system implementation by serving as “best practices” that should be conducted in order to make the implementation successful. This study will evaluate the Critical Success Factors of ERP system implementation in order to better understand how they aid in successful ERP system implementation in order to determine which CSFs must be addressed and at what part of the implementation process they should be addressed.

The research questions to be examined in this study are as follows:

1. What are critical success factors?
2. What are the critical success factors associated with ERP system implementation?
3. Why are these factors considered critical?

Review of Literature

Definition of Critical Success Factors

        Critical success factors (CSFs) are factors used to identify the key elements required for the success of an operation (Amoroso, 2015). Critical success factors are often further described as a group of identifiable operational goals, formed by the industry and management, that assure the success of the operation. (Laudon & Laudon, 1998). With this definition, it is assumed that critical success factors are the operational goals of an organization and that the attainment of these goals ensure the success of the operation (Laudon & Laudon, 1998). Critical success factors can be shaped depending on the structural changes within an industry as well as by managerial perception and operational strategies (Seddon & Shang, 2002) but for the purpose of this study, the research will focus on the critical success factors associated with ERP implementation based on organizational operational strategies.

Critical Success Factors in ERP System Implementation

        The ERP system implementation process spans the initiation of the project until the go-live. The initiation of the process begins with the decision to adopt an ERP system and the development of a business case for the implementation of the system (Shatat, 2015). As the process progresses, a project leader must be selected and the software, implementation partner must be selected and planning and scheduling begin (Shatat, 2015). As the ERP system implementation approaches go-live, it is put into use through the business process and is constantly monitored and adjusted until the system is stabilized (Shatat, 2015). The following Critical Success Factors have been identified as being crucial to the success of the implementation process.

Top management support. Managerial support must be a factor in all steps of the ERP system implementation. Management must be willing to be involved in the process and to allocate the resources necessary for the implementation. Through managerial involvement, the ERP system implementation process can be monitored and directed as needed (Summer, 2009). Top level management must identify the implementation project as a top priority, actively set up the project team, and communicate the new system structure to the entire organization (Summer, 2009). There are two issues that must be emphasized when dealing with top management support, the first of which is the business plan. Organizations should evaluate their resources and business needs in order to figure out whether it can handle an ERP system implementation (Denic, Nebojsa, Vujovic, & Spasic, 2016). If it is decided that they can, then the business plan will direct the implementation throughout the project life cycle (Denic, Nebojsa, Vujovic, & Spasic, 2016). The second issue that should be emphasizes is the issue of the financial budget. Top management must ensure that they allocate the proper funds to the ERP system implementation project (Denic, Nebojsa, Vujovic, & Spasic, 2016). The funding should include consultants, training, and additional support is necessary.