ERP Implementation Failures in Taiwan Tang, Jih-Hsin Assistant Professor Department of Information Management National Dong Hwa University
[email protected] Abstract Unsuccessful or unsatisfactory ERP implementations are not uncommon in the industry; however, the understanding about the reasons that ERP implementations fail is limited. Using grounded theory (Strauss & Corbin, 1990), the study attempted to grasp the essences of ERP implementation failure cases in Taiwan. The findings showed that insufficient knowledge (both about ERP products and intra-firm processes) matters the most, followed by management issues and technological troubles. These factors may have temporal precedence and interrelationships. Keyword: enterprise resource planning, case study Introduction Enterprise resource planning (ERP) or enterprise systems are commercial software packages, with a central database, that promise the seamless integration of all the information flowing through a company (Davenport, 1998). Although some companies achieved great business benefits by successful ERP implementations (Shang and Seddon, 2002), there are a growing number of horror stories about failed or unsatisfactory ERP implementations (Barker and Frolick, 2003). The failed or unsatisfactory implementations are not uncommon in Taiwan; however, there is no systematic studies conducted so far to gain a better understanding the reasons behind those terrible stories. The study aims at filling the knowledge gap between the academics and the industry. Several approaches have been adopted to investigate the ERP implementations. For example, a number of studies focus on the critical success factors (CSF) (Umble, Haft and Umble, 2003); some emphasizes on the risk factors (Scott and Vessey; Sumner, 2000); some take consideration of organizational fits or cultural fits (Hong and Kim, 2002; Soh, et al. 2000); and some try to understand the ERP implementations in a country or a region (Liang, et. al, 2004; Olhager and Selldin, 2003). The rationale behind these studies is that the identification of the CSFs and 1
risks might decrease the possibility of ERP implementation failures or increases the possibility of successful implementations. The similar rationale is that the identification of critical failure factors may prevent companies from implementation failures (Tsai, et al. 2005). It seems worthwhile to identify critical success factors or critical failure factors of ERP implementations; however it seems better to investigate the failure cases in order to learn the detailed lessons. Although the unsuccessful or unsatisfactory ERP implementation stories are common in the industry, little is known about the exact reasons behind this. The possible causes are: (1) it is difficult to acquire the sensitive data inside a troubled company; (2) it is considered less valuable to study troubled companies if most researchers believe that CSFs are good predictors for ERP implementations; (3) When a failed ERP implementation happened, both the client company and the consultant firm tended to blame the other, thus making the “ real causes”hard to explore. However, it is believed that delving into the troubled companies could enhance the understanding of ERP implementation failures; the chosen research method was the in-depth case study (Yin, 1994). The purpose of this study aims at investigating the troubled cases and classifying and constructing the organizational context, management and control measures, and technological problems that may result in ERP implementation failures. Research Method Due to the nature of the study, the research strategy was a multiple-case design. Case selection was made according to the following criteria: (1) the implementation was abandoned eventually for that organization; (2) the implementation was made in three years (since longer data may not be accessible); (3) more than one informants can be contacted. Three organizations from different industry were finally chosen for this study. Data collection was conducted in two parts. The first part consisted of semi-structured interviews. Interviews were conducted with 10 individuals, each lasting approximately 1 h and 2 h min. The informants, all of whom were directly involved in the failed ERP implementation cases, included project managers, MIS/IT managers, ERP consultants, vendor managers. All the interviewed were audiorecorded and transcribed for further analysis. The second part was to collect the archival information from various sources within the organizations (if possible), which included organization information, team lists, memo, reports and letters.
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The audio-recorded interviews were transcribed by assistants and reconfirmed by the researcher, and the final transcripts were analyzed with N6, which is leading software for qualitative research (Richards, 2002). The Cases Below is a brief summary of the cases from this study. The three organizations (pseudonymously named) that participated in it were: OMEGA, a medium-sized company in Taiwan, which has subsidiary for a bookstore chain, distribution centers, EC stores and retailing business OMEGA purchased a well-known ERP solution for the sum of NT$100 million, and the implementation team was formed and guided by an internationally leading consulting firm. The implementation lasted two years and was abandoned at last. BETA, a large corporate group with headquarters in Taoyuan, which initially produce chemicals such as soap, and later produce bread, rice cracks, and ice cream. BETA purchased a brand ERP solution, and implemented it for two years. The system did not live up to top managers’expectation, and several managerial information reports could not be made in a timely manner. Accountants were unsatisfied with the newly implemented ERP modules and disused it. GAMMA, a university in Taiwan, which formed a strategic alliance with a leading ERP vendor two years ago in the hopes of delivering a quality ERP program on campus. The implementation was mainly used for enhancing its educational programs and made its students more competitive in the job market. The educational program lasted for two years and the ERP systems were nearly abandoned or disused eventually. The expenditures of this ERP implementation cost the school approximately NT$10 million and was a disaster. Initial Findings and Discussions Using N6 for conducting the qualitative analysis, the three themes were found consistently in the three cases, that is, insufficient knowledge (K), improper management (M) and technology incapability (T). The KMT model will be described briefly below: (1) Knowledge: there are two dimensions of knowledge domains. One is about the ERP product itself, and the other is about the practices and processes 3
within the organization. It is obviously that the ERP vendors or consultant firms have an expertise of the working knowledge of ERP, and that is the clients (whatever key users, MIS managers or functional managers) who have a better understanding of the organizational structures, standards, processes and other organizational contexts. However, the truth is that some junior consultants, who were also learning ERP products, were sent out to the user sites; and the key users on the client sites might not know exactly the processes (or the appropriate personnel were not sent out to form the ERP project teams). The knowledge gap may be narrowed down if proper knowledge sharing and exchanged is ensured in the implementation processes. However, the three cases showed that the knowledge exchange was difficult and painful, if not possible. One MIS manager participated in the study claimed that: “the decision of purchasing the improper ERP product made the implementation team busy with the fixes and enhancements. And, eventually the whole project went awry.” (2) Management: Top management’ s support is always rated top critical success factor. However, the resolution among organizational conflicts (it is not always the MIS/IT department which initiate the ERP implementation project) is a challenging job. Each individual in the ERP team is self-interested. As shown in Table 1, at least ten different roles participate in the implementation. Furthermore, some of the role’interests are in conflicts. For example, two MIS managers in the study left their previous position (one left the organization) during the ERP implementations. Political struggle arising from the ERP team is definitely a major managerial challenge. Other managerial skills such as resource allocation, sufficient human resources and reward, and the top management’ s arbitration (the assignment of ambiguous tasks) also play an important role in the arduous journey. As a matter of fact, two of the cases showed that organizational conflicts (MIS and functional units) had an adverse effect on the morale of the implementation team, and it is the top ma na g e me nt ’ s responsibility to work out these conflicts. One manager added that: “the justice and the appropriate reward/punishment in the working environment ensure the implementation team function well. However, there is often lacking of the final arbitrator for the ambiguous tasks or responsibilities.”
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One CEO in a consultant firm declared that: “the major risk lies in the struggle between business-redesign and package customization. And, most businesses have difficulty coming up with novel solutions.” (3) Technology: although technological problems were considered minor ones in some cases, the accumulation of these problems caused a major disaster in all cases. The proper portfolio of IT skills on the implementation teams is absolutely necessary. It holds true that ERP implementation is not just a software installation, but it is also a bias to consider an ERP implementation as a solely business project. System stability, easy-to-use and perceived usefulness were also confirmed as dominant factors for ERP end-users usage. A manager in the study declared that the historical data from a legacy system was also a key issue. Table 1 Stakeholders of the ERP implementation projects Official Roles
Decision Level
Main Tasks
Board of Directors
Strategic
Decide the ERP strategic positions Approve of ERP project and financial support
Chief Executive Officer
Strategic
Monitor and control the project
Chief Information Officer
Tactic
Propose alternatives of ERP projects, including the selection of packages, the consultant firms, and the third-party ERP firms
ERP Project Leader
Tactic
Initiate and manage the ERP project Responsible for all the ERP implementations
ERP Consultant leader
Tactic
Cooperate with ERP project leader Plan and monitor the project scope, mileage stones and risks
Department managers
Tactic
Provide departmental information requirements/customization Assign key users to participate the project
Third-party ERP
Operational
Consultants MIS/IT Staff
Provide technical expertise and experiences, and sometimes perform customization task
Operational
Co-work with consultants Learn ERP modules and customization techniques if possible Plan and train key-users Do the technical support and trouble-shooting
Key Users
Operational
Provide detailed customization requirements 5
Official Roles
Decision Level
Main Tasks Change agent in the department
End Users
Operational
Participate the pilot testing and stress testing Learn the related modules and adapt to the new systems
The initial findings demonstrated the three inter-related themes. As shown in Figure 1, the KMT model depicts the relationship between three important constructs: knowledge, management and technology. And the three constructs have the temporal precedence. It is the insufficient knowledge of the ERP product makes the fatal decision for two of the three cases. One firm purchased an ERP that had no “ successful experiences to organizations of similar size, complexity and industry in Taiwan” , just because of the 10% discount and the brand name. The other (a university) purchased a well-known package, but no intern opportunities nearby for students to hone their work skills, thus decreasing greatly the students’motivation to learn ERP. The study confirmed Verville and Halingten’ s (2003) speculation about failed implementation, “ failed implementation is doomed from the start by users simply choosing the wrong system for their organization” .
Management
Knowledge
Technology
Figure 1: KMT model Even the chosen ERP product is appropriate for the organization, the managerial tasks are also challenging. A recent empirical research posited that three types of factors affect the knowledge transfer from ERP consultants to clients: knowledge factors, communication factors and motivational factors (Ko et al, 2005). How to motivate the ERP teammates and make effective communication are managers’tasks. The rationale of this study is to learn from failed ERP implementation lessons may make managers wiser before initiating a project. The main contributions of the 6
study are: (1) it is the first attempt to conduct in-depth interviews systematically with managers, consultants, and MIS staff from failed ERP implementation in Taiwan; (2) the study identified three major themes directly from the qualitative interview data, and these results could be used as a basis for further studies; (3) it is the first study to explore the temporal cause-and-effect relationships among those factors.
There are also some limitations of this study. Firstly, there are only three cases under investigation and the representativeness could be questioned; secondly, only part of the informants in a project participated the in-depth interview, and the validity of the study could be flawed; thirdly, hierarchical risk factors could be classified and analyzed in the ongoing study.
Managerial Implications Although the study is exploratory in nature, there are still some lessons learnt from these troubled cases. To begin with, the riskiest and most important decision is whether to implement or not, or which product is fit with the client organization. In consideration of stakeholders’interest, the recommendation product made by consultants, acquisition committee or top management may not be the best one. Even worse, if the product is not fit with the organization well, mass-customization (or process redesign) may make implementation harder. The second critical decision is to customize the package or to change the business processes. If mass-customization is decided, the project is at a high stake; however, if the business processes are changed, the user resistance is also a risky factor. How to balance the tradeoff between changing the processes or modifying programs is an important managerial decision. The last critical decision is about the proper portfolio of IT skills for implementation teams, and choosing the experienced project managers and key users may decrease the risk as shown in the appendix. Further study should be conducted to explore the relationship between these decisions and the actual risks, and these studies may make the risk estimate more accurate. Acknowledgements: The author would like to express gratitude to all managers, MIS 7
staff and consultants who participated in this study, and the generous grant from National Science Foundation 93-2416-H-259-014. Reference Barker, T. and Frolick, M. (2003), “ ERP Implementation Failure: A Case Study,”Information Systems Management, fall, pp.43-49. Davenport, T. (1998), “ Putting the Enterprise into the Enterprise System,”Harvard Business Review, July, pp. 121-131. Hong, K. and Kim, Y. (2002), “ Th ec r i t i cal success factors for ERP implementation: an organizational fit perspective,”Information & Management, 40, pp. 25-40. Ko, D.G., Kirsch, L. and King, W., (2005), “ Antecedents of knowledge transfer from consultants to clients in enterprise system implementations,”MIS Quarterly, 29, 1, pp. 59-85. Liang, H., Xue, Y., Boulton, W. and Byrd, T. A., (2004), “ Why Western Vendors don’ t dominate China’ s ERP market?,”Communications of the ACM, 47, 7, pp. 69-72. Olhager, J. & Selldin E.(2003), “ Enterprise resource planning survey of Swedish manufacturing firms,”European journal of Operational Research, 146, pp. 365-373. Richards, L. (2002), Using N6 in Qualitative Research, QSR International, Australia. Scott and Vessey, (2002), “ Managing risks in enterprise systems implementations,” Communications of the ACM, 45,4, pp. 74-81. Soh, C., Kien, S. S. and Tay-Yap, (2000), “ Cultural fits and misfits: Is ERP a Universal Solution?,”Communications of ACM, 43,4, pp. 47-51. Shang, S. and Seddon P. (2002), “ Assessing and managing the benefits of enterprise systems: the business manager’ s perspective,”Information Systems Journal 2002, 12, pp. 271-299. Strauss, A and Corbin, J. (1990), Basics of Qualitative Research: Grounded theory Procedures and Techniques, Sage Publications, Newbury Park, CA. Sumner M. (2000), “ Risk factors in enterprise-wide/ERP projects,”Journal of Information Technology, 15, pp. 317-327. Tsai, W., Chien, S., Hsu, P. and Leu, J. (2005), “ I de nt i f i c a t i ono fc r i t i c a lf a i l ur ef a c t o r si nt h e implementation of enterprise resource planning (ERP) system in Taiwan's industries,” International Journal of Management and Enterprise Development, 2, 2, pp. 219-239. Umble E. J., Haft R. and Umble M. (2003), “ Enterprise resource planning: Implementation procedures and critical success factors,”European Journal of Operations Research 146, pp. 241-257. Yin, R. (1994), Case Study Research: Design and Methods, Thousands Oaks, Sage, CA.
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Appendix List of Critical Decisions in the Multiple Case studies 1. Selection of the “ fit”ERP package 2. Selection of the “ right and responsible”consulting firm 3. Selection of the “ experienced and capable”consultants 4. Selection of the “ experienced and capable”ERP project manager 5. Selection of the “ right mix of technical and coordinate expertise”ERP implementation team 6. Selection of the “ fit proportion”of business process re-design or customization 7. Selection of the “ right”implementation method (Big-Bang, Roll-out or Phased)
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