Magoosh GRE

The impact of Multinational Adoption of ERP Systems on a Centralised Accounts Payable Department

| October 28, 2015

CHAPTER 1: Introduction

 

The aim of this chapter is to provide an overview of the proposed research project, the research approach, research methodology and also to provide an overall framework for the research topic.

The aim of this chapter is to give a reader a background into the research and the motivation for conducting this research. It also provides a fair view of the key topics that this research intends to discuss about.


1. Introduction

The past three decades have seen a rapid growth of both technologies and globalisation. Technology has been a facilitator to shrink the world into a small global village. Globalisation has led to a severe and cut-throat competition between companies and businesses try to get their niche by using technology as a tool that enables automation of various processes and procedures including management and accounting. In a technological era that is dominated by data, it is key to be able to integrate the data that is available across the organisation and ensure that the information is shared across seamlessly. This is handled by Enterprise Resource Systems help data and information flows across different business units such as finance, accounting, human resources etc. (Sadagopan, 2003).

Though there are various advantages of using Enterprise Resource Planning (ERP) systems across the business, they were primarily designed for use within the accounting departments to facilitate easier handling of accounting data and for general book keeping purposes (Chapman, 2005). As such, ERP systems handle a lot of different accounting processes including but not limited to general ledgers, asset management, accounts receivable, accounts payable, costing, profit and loss accounting, analysis of business performance etc. (Hunton, 2002). Though most organisations implement ERP systems just within their accounting department, the technology has an impact on the overall organisation. This is due to the fact that the technology brings about a lot of changes in terms of how things work and the way things are done. It reduces the effort taken by the workforce and also leads to a transition of roles within the business (Sutton, 2007).

Like any implementation of any technology, ERP system brings a lot of change within the organisation and therefore becomes necessary to go through a proper change management or a change control procedure. Also, depending on the size and nature of the business and the business culture the implementation of the technology can have either a positive or a negative effect.

Forbes study shows that the total ERP market share of $25.4B worldwide and there is a steady increase in the ERP adaptation by businesses (Forbes, 2014). Compared to 2012,  there has been a rise in the market adaptation by 3.8%. The study also talks about the potential for ERP would grow as it can be combined with other technologies and offered by vendors over the cloud.

The main goal of implementing ERP systems is to increase the business efficiency by ensuring that the information flows are improved and costs are decreased(Beheshti, 2006). This is done by ensuring that various departments with various communication needs are integrated to allow information to flow from one single system. This ensures that all business units cooperate and interact with each other thus increasing the efficiency and also reducing information redundancy (Harrison, 2004).

1.1 Research Aim

There is a lot of literature on ERP systems implementation, the advantages and disadvantages of implementing ERP solutions, risks associated with ERP solutions etc. There is also a lot of research that looks at the implementation from both a technological and accounting perspective. The current research also discusses critical points of failures, cost implications of using ERP systems and the management styles and business models. However, there is not much of research in terms of discussing about ERP implementation from a change management perspective. Also, discussing it only from the key point of an accounting department is essential to be able to identify the success criteria for implementation. Another key measure to take into consideration would be to discuss the impact during the implementation and also post implementation period to be able to compare and contrast the various challenges in each phase, the advantages of using specific implementation methods, the change management principles used and to be able to derive the best practice framework.

The main aim of this research is to be able to understand the impact of ERP systems in terms of change management and cultural perspectives with a specific emphasis to the Accounts Payable Department. This research aims to be able to measure:

  1. The general impact during the implementation of ERP systems on an organisation and
  2. The cultural change the ERP system imposes on the business post its implementation.

1.3 Research Approach

This research requires that a scientific approach is followed in order to be able to measure the impact mentioned above. The research relies on

  1. Literature Review: A thorough review of the literature is done in order to understand the impacts of ERP implementation from various perspectives. It uses secondary data gathered from these researches to be able to identify the level of impact of an ERP implementation.
  2. Primary Data Collection: This is done by collecting primary data by means of interviews. This enables to gather qualitative data and also to get a more in depth idea about an ERP implementation in the real world scenario. The research aims at gathering data from 6 – 7 interviews conducted and then a detailed analysis is done. Every interviewee is well informed about the nature of the research and are also given a brief about reason for undertaking the research. Furthermore, each interviewee is assured that their personal details collected are kept confidential and that the data published will be anonymised (that is without having to refer to them directly). Their consent is taken prior to them participating in the research and they are also given an option to withdraw from the interview process if they do not wish to continue. Furthermore, the interviewees are informed that they can request a copy of the research documentation if they would like. These steps are taken in order to ensure that there are no ethical conflicts that might arise out of the interviews.

Based on the above two, the impacts are identified and summarised towards the end of the thesis.

1.4 Dissertation Outline

This section of the document gives an overview of the various chapters in the dissertation and how the thesis is organised. Chapter 1 which is the Introduction chapter gives the overview of the research, the background and motivation for the research along with the research questions and approach. Chapter 2 which is the Literature review discusses in detail about ERP systems, the benefits of using ERP systems,  risks and challenges of ERP implementation. Chapter 3 identifies the key themes associated with the research and gives a further in depth review of the literature and the different points of view. This helps identify the gaps in the literature and also gather secondary data. Chapter 4 which is Empirical Data Collection discusses the data collection methods and analyses the data obtained from the interviews. Chapter 5 talks about the key findings both from the literature and the empirical data collected. Chapter 6 which is the final chapter discusses improvement solutions (if any) based on the data collected and provides an an overview of the contribution of this research along with the scope for further research and limitations of the current research. It also discusses about the personal reflections that the author has become aware of as a result of doing this research.

CHAPTER 2: Literature Review

The main aim of this chapter is to do an in depth review of the literature and identify various themes that are associated with the Research. It introduces the reader to the concept of ERP, the evolution of ERP and the current literature on measuring the impacts of ERP solutions within a business organisation.

2.0 Enterprise Resource Planning Technology

This thesis discusses the impact of ERP adoption, however it is first necessary to understand the ERP technology, its advantages, challenges and benefits of adoption to be able to evaluate the impact of its adoption from various perspectives.

Traditionally, a business was looked up as a combination of different independent units divided based on the function it performed. As such there were many divisions such as finance, Human Resources, Accounting, Sales, Purchasing etc. Each function or business unit is compartmentalised and has its own goals and objectives. As opposed to this approach, in an Enterprise, all people and departments collaborate and work towards achieving the common goal of the business. Therefore all departments are considered a part of the enterprise and information from each individual department or unit is available across the organisation which leads to transparency of information and avoids duplication of tasks. This is depicted in the figure below:

Enterprise_way_of_data_collaboration

 

Therefore an Enterprise Management System (ERP) facilitates the sharing and collaboration of data across the organisation by ensuring that the three fundamental characteristics of data namely timeliness, accuracy and relevancy are maintained. It provides an Integrated Information System whereby all data is held at a central repository accessible by all departments. It also provides a Management Information System that helps in the generation of management reports that helps in the day-to-day decision of the business. (A Leon, 2008)

Benefits of ERP

There are various benefits of using ERP systems. The most important benefits are:

  1. Improved efficiency: ERP solutions were initially designed with the key aim of improving the efficiency of the processes and bringing significant cost reduction to the business process. This is done by taking into consideration the various communication needs of all the departments and brining in together a single system that would cater to those needs. (Harrison, 2004)
  2. By providing a single data repository, it standardises the processes and the data structure of the organisation and helps to streamline the data flow (Lieber, 1995)
  3. Earlier technologies used stand-alone systems that were difficult and expensive. ERP however has a robust and streamlined one-transaction system that is easy to upgrade (Nash, 2000)
  4. It provides a standardised environment that helps streamlining the processes by standardising all data and information that flows across the business. It helps the company to centralise all their operations and administrative tasks and facilitates in providing business intelligence report for day to day management decisions for the business (Siau, 2004)

 

ERP Implementation Process

Various researchers suggested different frameworks and models for implementation of ERP solutions. These can either be classified into process models or life cycle framework models. One such model is the five-stage process developed by Ehie and Madsen (2005). The various stages of this model includes the following:

  1. Project preparation: In this phase there is a detailed discussion at the management level of the organisation/business and the project team is decided with roles and responsibilities of the project members defined, budget allocated and the overall objectives are defined and explained.
  2. Business blueprint: This is the second stage whereby the appropriate ERP system is being selected after the current business process is analysed in detail.
  3. Realization: This is the third phase of the implementation process whereby the actual implementation of the ERP solution selected is done and various associated processes such as data conversion, modification and development of new interfaces are done simultaneously. Once the design is done, it is also tested in this phase.
  4. Final Preparation: All the modules developed, interfaces designed and the data converted are now fully integrated in this phase. The users are trained in the organisation in this phase.
  5. Go-Live: This is the final phase of the ERP implementation where the actual product “goes live”. This is the stage where the product is stabilised and any extensions are made.

These five stages are depicted in the diagram below:

ERP_implementation_process

 

Fig 2: Five stage ERP implementation process (Ehie & Madsen, 2005)

Challenges to ERP implementation

There is a huge growth in the ERP systems since the 1990’s, however despite the tremendous growth businesses still come across various implementation challenges. Though ERP systems and solutions do have significant benefits to the business in general, not all ERP implementations are successful. Researchers argue that the failure cannot be attributed to the ERP system itself but ERP implementations fail due to the complex nature of the solutions and also due to inadequate Change Management in place that makes it very difficult for the business to be able to handle such massive changes (Helo et al, 2008).

The top ten factors that contribute to the ERP implementation failure are as follows (Huang, Chang, Li and Lin, 2004)

  1. Lack of senior management commitment: Successful ERP implementations happen only when the clear instruction comes from senior management. It can therefore be said that a positive commitment from the senior management is a key success factor for ERP implementation
  2. Ineffective communication with users: Like any other technology implementation, communicating the change and the impact to the users plays a key role in the success of the technology adaptation.
  3. Insufficient training of end-users: In many businesses, due to lack of time and money, end-users might not be adequately trained which leads to them not adapting to the technology well leading to the lack of proper utilisation and realisation of benefits provided.
  4. Failure to get user support: Change is inevitable and not all people are happy to adapt to the change. Hence it is key to get the user support before the implementation and alleviate their fears and have a proper run-through of the technology.
  5. Lack of effective project management methodology: A good project management methodology takes into consideration the project timelines and budget along with the risks and the change management to ensure successful implementation and adaptation.
  6. Attempts to build bridges to legacy applications: A good ERP system should be able to perform on its own and not be a bridge to legacy applications. This causes data duplication and some functions not fully usable leading to errors and failures.
  7. Conflicts between user departments: Before the implementation of the ERP system, the enterprise should be well-defined and the role of each department should be clearly established to avoid conflicts.
  8. Composition of project team members: It is essential that the project team members are selected from all departments and are knowledgeable and contribute to the project success.
  9. Failure to redesign business processes: Implementing the ERP system alone does not do any good to the business. The idea is to align the business processes and follow best practices. Failure to redesign the business processes eventually leads to ERP implementation failures.
  10. Misunderstanding of the change requirements: Not having a good change management process leads to users misunderstanding the change requirements and no formal way to track or evaluate changes thus leading to ERP system failures.

(Huang, Chang, Li and Lin, 2004)

Summary

The main aim of this chapter was to present the reader an overview of ERP systems, the key implementation challenges, the implementation process and the advantages of implementing the ERP system. The following chapter discusses one of the main themes of the research namely the impact of ERP systems in accounting, changes to the business culture post implementation of ERP systems.

CHAPTER 3: Key research themes

The main aim of this chapter is to do an in depth review of the impact of the ERP system on the management accounting practice of the business and the changes in the culture of the business post implementation of the ERP solution.

This chapter also helps to gather secondary data from various sources that would be used as an input in Chapter 4.

ERP systems and Accounting

Chapman (2005) argues that the implementation of ERP solutions is very much connected with the accounting processes and procedures of an organisation. Management accounting practices within the businesses post implementation of ERP systems are shown to become effective and efficient by various researchers (Lea and Min, 2003; Lea, 2007) who claim that this is due to the fact that data is now integrated which provides greater flexibility when it comes to accessing information (Booth et al, 2000).

Various researchers have been researching on the impact of ERP systems on management accounting practice of a business (Booth et al., 2000; Granlund and Malmi, 2002; Caglio, 2003; Hyvonen, 2003; Scapens and Jazayeri, 2003) and discussed about the changes that occur from the implementation of these systems on the management accounting practice. Most researchers have made use of surveys that were designed to identify and investigate the level of impact ERP solutions have on the management accounting practice of an organisation.

One of the first studies conducted to be able to scientifically examine the impact of ERP on accounting department was done by Booth et al (2000). The main aim of the study was to identify if businesses adopting to ERP were able to use higher and sophisticated accounting methods, management reporting improvements that these businesses made post implementation of ERP systems, the level of information integration and ease of decision making process. To be able to empirically analyse the outcomes, the researchers distributed 800 questionnaires and received 74 responses in total. The researchers excluded those responses from businesses that were in the process of the implementation and therefore a final of 55 companies were selected for the purposes of analysis comprising of 23 users with ERP implementation and 32 non-ERP businesses. The main findings of the research suggests that there has not been much of a difference between ERP and Non-ERP users in the accounting area of the business or in the level of information integration. This can be attributed to the fact that most companies that used ERP had only recently implemented the solution and for the system to stabilise, it might take a few more years. Also, the research found that there has been a minor impact in terms of sophistication of accounting techniques due to the implementation of ERP systems. Based on these findings, the research concluded that there has not been much of an impact on management accounting and there are not much benefits of implementing ERP solutions.

Similarly, Spathis and Constantinides (2003) examined the impact of ERP on management accounting and used 98 companies to obtain information with a turnover of 45 companies responding to the questionnaire. The main findings of the research notes that companies found great improvement in terms of the quality of management reports, flexibility of information generation thus leading to better integration of information. The research also noted that the decision making process has not been improved much based on the accounting reports received through ERP solutions and therefore concludes that though ERP systems are effective as an information processing, information repository it does not help much in terms of decision support areas of the business.

A research conducted by in 2004 by Doran and Walsh to identify how much of an impact ERP systems has on the management accounting. The researchers obtained responses from 70 companies. Unlike the above two researches, this research found that there is a strong association between ERP solutions and the impact it has on management accounting. The research suggested that implementation of ERP systems enabled businesses to use                 various additional management accounting practices such as variance analysis, breakeven analysis etc. and that the implementation of ERP systems enabled the management accountant to relieve himself of mundane tasks therefore providing more time for beneficial analysis to support key business decision making processes and people.

References

A Leon, 2008: Enterprise Resource Planning Second Edition, Tata McGraw Hill Publication, New Delhi

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