Lifecycle strategic approach for ERP implementation decision.

Taucean, Ilie ; Taroata, Anghel ; Tamasila, Matei 等

Abstract: This paper proposes a strategic approach for SME's decision to integrate all activities with an ERP system. This model combines two known strategic models: lifecycle development for enterprises / BSUs / ERP systems and BCG Matrix. The model uses indicators like performance, cost, duration, return of investment, disruption factor, growth rate, market share and cash-flow. It is taking into account the different strategies for ERP's implementation/transition specific for small and medium enterprises (SMEs).

Key words: ERP, Lifecycle, BCG Matrix, SME.

1. INTRODUCTION

In the context of extremely dynamic global business environment, enterprises should adopt ERP systems that promise to integrate all their processes. This decision should be integrated with the strategic decision for lifecycle development of enterprise/production system. There is also additional risks of failure due to the complexity, cost and duration of the implementation, especially for small and medium enterprise.

2. SHORT HISTORY OF ERP SYSTEMS

The 90's and the technological revolution have changed the planning process in enterprises. The information technologies have to keep up to the new market needs. Since 1960, when the MRP (Material Resource Planning) concept appeared (figure 1), it had suffered transformations and has developed into today's ERP (Enterprise Resources Planning) and tomorrow's EERP (Extended ERP) (Fotache and Hurubean, 2004).

An ERP is a complex software application which integrates all the processes of the company having as a purpose its perfection and growth in efficiency. From a functional point of view, an ERP manage resources from: financial, immobilizations, stocks, human resources, production, costs etc., and it became industrial standards de facto.

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3. HISTORY OF ROMANIAN SME'S AFTER 1990

After the historical Revolution in December 1989, Romanian SMEs has starting up and developed continuous, from relatively rapid growth to a temperate re vitality after 2000, and also now with Romanian pre and post adhesion to UE (Burtica et al., 2006) as its shows in figure 2.

This allows us to consider that SME's grows different, in different stages, in number and in terms of revenues and profits. So the most starts and developments of business were with technological development, after that was the adoption of software packages, as software developed in the 90's.

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4. THE NEED FOR ERP SYSTEM

Nowadays, in order to survive, the enterprises have to reduce the production cycles and get low costs/prices for a high satisfaction of the customer. An efficient approach to process planning for a high competitiveness is integrating all departments/software applications together in an ERP system. The decision to go ERP is a difficult one for all kind of organization, especially for an SME. The decisional process is triggered by the problems that appear due to a reduced cooperation and interactivity of the departments, and by their software isolation. Also problems appear when enterprises are confronted themselves with a growing crisis in different stages of lifecycle. As it seen in figure 2, this actual 4th stage is one that comes with problems and crises for a SME in Romania, so it is imperative to do something to overcome these.

The need for ERP is motivated by the need for performance increase (speed, savings, accuracy). The reasons are technical (changes, adaptations and modifications for technical processes improvement), organizational (flexibility increasing) and strategical (gaining competitive advantages and adaptation to market needs). ERP projects are often associated with important and radical organizational changes such as BPR (Business Process Reengineering).

5. PROBLEMS FOR ERP IMPLEMENTATION

Evaluations of the ERP systems usually use many criteria, but we can reduce these criteria according to what we specific want to evaluate. For a SME, the comparing criteria for ERP integrated systems can be: the total cost of ownership (TCO), performance (rapidity, promptitude, interactivity, multi-user, multitasking, flexibility, complexity, modularity), duration of implementation, return of investment (ROI).

Modularity is one criterion that poses some problems, because of the module implementation order. Although ERP historically starts as an application for material and manufacturing planning (MRP and MRP II), so it should resolve especially the production problems, now usually the module implementation order is: financial, commercial, stocks, and then production. Even if the decision to go ERP is frequently to resolve problems in production, these problems are not easy ones and often will be "saved for last" by the ERP system.

6. BUSINESS DISRUPTION FACTOR

Enterprises expect to gain value from the ERP as soon as it is installed, but most of the ERP systems don't reveal their value until after running for some time. So, many organizations are postponing major IT initiatives. One factor that is often underestimated, never properly measured, is the business disruption factor. Many ERP implementations have caused major business disruption and a drop in performance. The most common reason for the performance problems is the change. Another reason could be the known "gestalt" theory that says: "the whole is more than sum of its parts" (Wertheimer, 1924). If at the beginning two can do more individually than together, then in unity they can do more than apart (see figure 3).

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7. SME's LIFECYCLE AND BCG MATRIX

BCG Matrix is a well known model for strategy development. It shows BSUs (Business Strategic Units) positions over four quadrant matrix, with the axes: market growth rate (cash usage) and relative market share (cash generation) (Nicolescu, 1996). Specialists consider that it's preferable to have BSUs in every quadrant of the matrix (so call "balanced matrix"). These because question stage need cash that can be generated in cash cow stage, also star stage is for "showoff", and dog is for old business in last stage of lifecycle (decline/fall stage) and it is considered for elimination/exit (see figure 4).

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There are many ERP implementation strategies (table 1). For a SME is reccomended, in order of importance, "ready made" or "big bang" strategy, then "minimum risks". "In house" strategy is allmost impossible for a SME because of the need for high internal resources, which a SME simply don't have.

Changing old system with new one should be integrated with development and IT strategy of the enterprise, and could be done by a trazition strategy such as: integral, by phases, parallel or mixt. The order of importance for a SME it should be, if possible, the integral strategy, then parallel, then by phases.

The BCG matrix provides a framework for resources allocating among different BSUs and allows compareing many BSUs at a glance. Through analyses with BCG matrix, management can propose strategies for development, and it can be use in decision proces to go ERP. Combining BCG Matrix quadrants with enterprise lifecycle stages the decident could determine the right stage/quadrant for ERP implementation (Taroata et al., 2001). For a SME the right stage is allmost allways "cash cow" or 3rd stage (maturity) of enterprise lifecycle.

Small and medium size businesses should go for medium size ERP, but small, shoestring low-cost ERP applications are available for even the smallest enterprise.

A SME should be especially thorough when evaluating and selecting an ERP that ensures they choose a solid software package that provides a strong ROI to the company. Also they have to choose the right stage of lifecycle to go ERP.

8. CONCLUSION

After having analyzed Romanian SMEs and ERP's market, the conclusion is that, in order to be competitive, enterprise will have to take the step of implementation of some ERP system. The approach propose here can be successfully used for implementing an ERP in an industrial enterprise. ERP is in nowadays an essential tool for success, but is not sufficient. The ERP specialists should have knowledge both in technical/IT domain and in engineering and economic/management domain. The development of a successful activity requires the use of a practical methodology for examining the business and for its maintaining on the way to success, on stages of lifecycle that generate cash, profit and development.

9. REFERENCES

Burtica, M.; Taroata, A. & Tamasila, M. (2006). Small and Medium Enterprises Management--Concepts, Evolution, Strategies, Solness, ISBN 9737290690, Timisoara7

Fotache, D. and Hurubean, L. (2004), Informatics Solutions for Business Management--ERP, Economica, ISBN 9735909847, Bucuresti

Nicolescu, O. (coord) (1996), Enterprises Management Strategies, Economica, ISBN 9739198260, Bucuresti

Taroata, A.; Hoanca, R.; Tamasila, M. & Taucean, I. (2001). Economic Engineering, Politehnica, ISBN 973824773X Timisoara

Wertheimer, M. (1924). Gestalt Theory, Available from: http://gestalttheory.net/archive/wert1.html#fn1, Accessed: 2007-07-16

Table 1. ERP implementation strategy

Strategy Advantages Disadvantages

Minimum risks Low perturbation Too long
 No big surprises Too expensive
"Big bang" Reengineering Too difficult
 Rapidity High perturbation
In-house Adaptation to internal High risk
 processes Low external response
Ready made Low internal resources High risk
 Too difficult