The Benefits of Enterprise Resource Planning (ERP)
Overview of the Case Study
Usually, organization is divided into several parts. Each part has its function based on the jobs, tasks and responsibilities, such as financial, marketing, human resources, accounting at cetera. The divisions are determined to manage the complexity of the jobs. However, they need to be organized each other and work with other divisions. Therefore, the divisions should be assisted by a system that can organize the organization to reach the goals.
Each division has different jobs and tasks as well as different data. It can be jeopardy to the organization because many data and information must be faced and needed to make a decision. The complexity of the data must be handled to produce a high quality of decision and reliable information. Consequently, the organization needs integrated system to maintain many tasks from each division.
The development of information technology facilitates an organization to have an integrated system. The complexity of the organization can’t be managed by using manual system. It will consume much time. By using information technology, the problem can be minimized and also more effective and efficient. Enterprise Resource Planning (ERP) helps the organization to solve the problem above. As an integrated system, Enterprise Resource Planning can manage many data from many divisions so that the organization produces integrated information. The integrated system of information technology assists to produce integrated data because it utilizes the process of Integrated Systems.
ERP serves the needs of people in finance department as well as it does the people in human resources department or in the marketing department. Each of those departments typically has its own computer system, each optimized for the particular ways that the department does its work. But ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other.
Below is the case study from a state-owned integrated electricity company. The company has problem primarily on working without non-integrated systems and non standardized business processes. The complete story can be read below.
A state-owned integrated electricity company employing around 38,000 staff, serving over 37 million customers (households, industry, business and others) with a total asset of USD 35 billion (December 2009), has been operating throughout the country with non-integrated systems and non standardized business processes. The company’s major issues were that business processes are not standardized and consolidated financial reports were not produced on a timely basis, lacking important decision-making information. In addition, lack of integrated knowledge and control of inventories and assets led to under-utilization of assets. With respect to Talent Management, the company’s processes concentrated on basic record keeping and un-integrated payroll systems, making it difficult to introduce training plans, career management, succession plans, transparent performance evaluation, and other requirements of a modern Human Resource Management area.
Based on the problem above, Accenture implemented an integrated Enterprise Resource Planning (ERP) that covers Financial Management, Material Management and Human Resource Management areas, using SAP.
Given the large scale of ERP Implementation and considering the company’s first experience with an integrated system, major change management effort is required. To minimize implementation risk, Accenture selected a multiple phase approach. Combinations of roll out sites were carefully picked to ensure minimal business disruption and yet breadth of functionalities is covered. Lessons learnt from earlier roll out was studied and immediately applied to the next one.
A total of over 500 training classes were held and a total of over 10,000 training days were consumed by users to learn the ERP system. Appropriate management sponsorship was maintained throughout the implementation, including training which resulted in over 95% training attendance rate.
Throughout the implementation journey, Accenture managed to help the company build ERP template that consists of standard policies, business process, chart of accounts and reports to be used at other company’s business units.
The Benefit of Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP) System implementation is both an art and science that consists of planning, implementation, and ongoing maintenance. This methodology is designed to automate the drudgery of implementation and provide organized approaches to problem solving by listing, diagramming, and documenting all steps.
ERP systems should produce accurate, complete, and authorized information that is supportable and timely. Enterprise Resource Planning (ERP) software system integrates key business and management processes within and beyond a firm’s boundary. Based on literature, there are three major reasons why companies undertake ERP:
- To integrate financial data. As the CEO tries to understand the company’s overall performance, he or she may find many different versions of the truth. Finance has its own set of revenue numbers, sales has another version, and the different business units may each have their own versions of how much they contributed to revenues. ERP creates a single version of the truth that cannot be questioned because everyone is using the same system.
- To standardize manufacturing processes. Manufacturing companies—especially those with an appetite for mergers and acquisitions—often find that multiple business units across the company make the same widget using different methods and computer systems. Standardizing those processes and using a single, integrated computer system can save time, increase productivity and reduce headcount.
- To standardize HR information. Especially in companies with multiple business units, HR may not have a unified, simple method for tracking employee time and communicating with them about benefits and services. ERP can fix that.
In another literature, Gattiker and Goodhue (2000, in the Lorin et al) group the literature of ERP benefits into four categories:
- improve information flow across sub-units, standardization and integration facilitates communication and better coordination;
- enabling centralization of administrative activities such as account payable and payroll;
- reduce IS maintenance costs and increase the ability to deploy new IS functionality;
- ERP may be instrumental in moving a firm away from inefficient business processes and toward accepted best of practice processes.
The impact of ERP to the company’s business processes
There are several impacts for the state-owned integrated electricity company after the implementation of Enterprise Resource Planning (ERP). Certainly, before continue to the benefits, it is relevant to discuss about the ERP training and change management of the company to minimize the disruption and even the negative effect. In addition, the company must measure the impact of ERP to the organization’s productivity, cost and profit also Return of Investment (ROI).
The implementation of ERP is related to the change and it requires to be managed to reduce the problem of change. Thus, the manager/leader must make sure that all processes of change are under controlled. As a new system in the company, much training must be prepared to facilitate all members of the organization and to learn about the information system. It can decrease the rejection of new system implementation.
Another important aspect is the effect of new system. The impact can’t be reached in short time. It needs several months to implement the new system to the company. It also requires transforming all data in each division into new server system. The data will be collected in the integrated system. Hence, the company should maintain all change and ensure that the internal and external processes (customer satisfaction) will run smoothly.
Accenture implemented an integrated Enterprise Resource Planning (ERP) that covers Financial Management, Material Management and Human Resource Management areas to solve several problems in the state-owned integrated electricity company such as:
- Financial Management to cover business processes is not standardized and consolidated financial reports were not produced on a timely basis, lacking important decision-making information.
- Material Management to cover lack of integrated knowledge and control of inventories and assets led to under utilization of assets.
- Human Resources Management; With respect to Talent Management, the company’s processes concentrated on basic record keeping and un-integrated payroll systems, making it difficult to introduce training plans, career management, succession plans, transparent performance evaluation, and other requirements of a modern Human Resource Management area.
The company will receive positive impact if the company can manage the change as well as can handle the training process. ERP as integrated system can help the company to reduce costs, build an effective business processes, build competitive advantage and build customer satisfaction. Using an integrated system in Financial Management, Material Management and Human Resources Management can help the company to produce single data that useful to make a decision and produce reliable information.
Several positive impacts will be explained below:
Financial department is one of the most important departments in companies. It manages the financial report of the organization and controls the cash flow. It also gets and receives many financial data from other departments that must be organized. Hence, the company needs standardized and consolidated financial reports. Enterprise Resource Planning can do that. After using an integrated system, the company will have standardized and consolidated financial reports that are produced on a timely basis. The system also helps to make important decision-making and provide useful information based on the data. As the result, the company can reach the competitive advantage as well as satisfy the customer.
Companies need material management to control the inventories and to manage the assets for production process. Bad management in the material and assets maintenance brings negative effect to business process. The problem in the state-owned integrated electricity company gave negative effect such as lack of integrated knowledge and control of inventories and assets led to under utilization of assets. Therefore, the department of material must organize the material and assets carefully.
By using ERP system, the management of material in the state-owned integrated electricity company will be organized well. The input and output of material and inventories can be accurately maintained. In addition, the assets of the company also will be listed and used to optimize the business process. The integrated system using ERP also make the other departments easy to check the inventories and assets. It can provide trustworthy information that can bring benefit to the company. In conclusion, the state-owned integrated electricity company will get an effective and efficient (reduce cost) business processes.
Human Resources Management
Human resources management is also important division in the company. It manages all people in the company from recruitment and staffing process, training of human resources, compensation and merit system also the termination process. Thus, the department needs accurate data to make human resources decision. The state-owned integrated electricity company faced a serious problem that brings negative effect on basic record keeping and un-integrated payroll systems, making it difficult to introduce training plans, career management, succession plans, transparent performance evaluation, and other requirements of a modern Human Resource Management area.
To solve those problems, Accenture provide solution by using integrated system called Enterprise Resource Planning. Human Resources Management worked with other departments to use Enterprise Resource Planning. The system offers an integrated system and integrated solutions. ERP facilitates Human Resources Department to organize all human resources stuff, such as the number of employees as well as the name lists each department, compensation and merit system, training plan, career management, evaluation of the staffs and so on.
After using ERP, the problems above can be solved. Integrated data and integrated information give solution for the state-owned integrated electricity company. The impacts not only bring benefit for internal human resources department, but also for other departments. ERP make the human resources process more effective and efficient.
ERP is an information technology system. It is an integrated system because it helps the company to manage many tasks from each division. Enterprise Resource Planning can manage many data from many divisions so that the organization produces integrated information. The integrated system of information technology assists to produce integrated data because it utilizes the process of Integrated Systems. Therefore, ERP needs template that consists of standard policies, business process, chart of accounts and reports to be used at other company’s business units. ERP as integrated system can assist the company to reduce costs, build an effective business processes, build competitive advantage and build customer satisfaction. It can also provide reliable information. Though, to achieve those goals, major change management and training are required.
- ERP System Implementation Overview http://media.wiley.com/product_data/excerpt/80/04712351/0471235180.pdf
- Lorin M. Hitt, D.J. Wu And Xiaoge Zhou. ERP Investment: Business Impact and Productivity Measures http://opim.wharton.upenn.edu/~lhitt/erp.pdf
- Executive Guide Enterprise Resource Planning http://www.netessence.com.cy/downloads/erp.pdf