ERP Systems' Life Cycle: An Extended Version (information science)

INTRODUCTION

The 1990′s witnessed an impressive growth of Enterprise Resource Planning (ERP) systems in the market of corporate IT solutions, and now they are an important component of IT architecture in many companies. The ERP systems are introduced in companies following well-defined stages, namely the stages of decision, selection, implementation, stabilization and utilization. This last stage (utilization) is also characterized by the development of an organized effort to continuously ensure that the ERP system meets business needs regarding functionality, performance, availability, and to control operation costs, at the ERP management stage. This chapter presents aspects involved in each stage of this life cycle, based on the referenced bibliography.

BACKGROUND

Enterprise Resource Planning (ERP) systems are integrated information systems acquired as commercial software packages that aim supporting most of the operations of a company. Markus and Tanis (2000) define them as commercial packages that enable the integration of data coming from transactions-oriented information systems and from the various business processes throughout the entire organization. Examples of ERP systems found on the market are the SAP ERP of the German company SAP and Oracle Applications of the American Oracle. Some authors present and describe characteristics that allow differentiating ERP systems from systems developed within the companies and from other types of commercial packages (Markus & Tanis, 2000; Souza & Zwicker, 2001). These characteristics may be summarized as:


• ERP systems are commercial software packages;

• They include standard models of business processes;

• They are integrated information systems and use a corporate data base;

• They have a large functional scope;

• They require adjustment procedures to be used in a given company.

When deciding to use ERP systems, companies hope to achieve manifold benefits, like business processes integration, increased of control of operations, technological updating, IT cost reduction and access to information in real time for decision making. However, there are also problems to be considered, with implementation failures being reported (Barker & Frolick, 2003). Table 1 synthesizes benefits and difficulties of ERP systems mentioned by many authors (Bancroft, Seip & Sprengel, 1998; Davenport, 1998), and relates them to ERP systems’ characteristics.

Although the initial focus of ERP systems was the integration of the internal value chain of large industrial companies, they are now evolving to a wider scope, including interen-terprise integration features (McGhaughey & Gunasekaran, 2007). In many cases, the ERP systems became the basis upon which companies begun to develop other initiatives such as: customer relationship management (CRM), supply chain management (SCM) and business intelligence (BI). ERP systems are also now present in a growing number of companies in financial and service sectors and several vendors are now focusing small and medium companies as their target for market expansion.

ERP SYSTEMS LIFE CYCLE MODEL

The life cycle of information systems represents the various stages through which a project of development and utilization of information systems passes through. In its traditional form, the systems development life cycle encompasses proj ect definition, system study, design, programming, installation, and post-implementation stages.

In the case of use of commercial software packages, these stages may differ. For instance, in the system study stage the focus is not on obtaining a detailed system specification from the users for programming the system, but instead, verifying the functionality of the many choices available from vendors, against a set of requisites from the users that will guide system adaptation or customization.

Like any commercial software package, ERP systems exhibit differences in their life cycle regarding traditional systems development projects. But because of their large functional scope and the integration between its various modules, these differences are deepened. Some authors present models for the ERP systems’ life cycle (Esteves & Pastor, 1999; Markus & Tanis, 2000; Souza & Zwicker, 2001). The main features of these many models are summarized in Figure 1, which includes the stages of decision and selection, implementation, stabilization, and utilization. The ERP management stage is included as an addition to the utilization stage and as an extension to the traditional ERP life cycle model, and is described next, along with the other stages.

Table 1. ERP systems benefits and difficulties

Characteristics Benefits Sought Possible Difficulties
Commercial Package - IT costs reduction

- Focus on company’s core activities

- Technological updating

- Backlog reduction

- Supplier dependence

- Lack of knowledge on the package

- Loss of previous systems functionalities

Best Practice Business Models - Knowledge on best practices

- Access to other companies’ experiences

- Need to adjust the company to the package

- Need to change business procedures

- Need of consulting for implementation

Integrated Information System - Greater control on the company’s operation

- Real time access to data and information

- Elimination of interfaces between isolated systems

- Improvement of information quality

- Synchronization between activities of the value chain

- High implementation complexity and costs

- Difficulty to update the system as it requires agreement among various departments

- One module not available may interrupt the functioning of the others

- Resistance due to increase of demands to the areas responsible for data input

Corporate Data Base - Standardization of information and data definitions

- Elimination of discrepancies between information of different departments

- Information quality improvement

- Access to information for the whole company

- Cultural change of the view of “owner of the information” to that of “responsible for the information” may cause resistance to change

- Responsibilities attribution on files shared between areas

- Overload of the data base causing performance problems

Great Functional Scope - Maintenance elimination of multiple systems

- Standardization of practices

- Reduction of training costs

- Interaction with a single supplier

- Dependence upon a single supplier

- If the system fails the entire company may stop

- Support difficulties in the stabilization phase

ERP systems Decision and selection

At the decision and selection stage the company decides to implement an ERP system as an IT solution and chooses the vendor. A series of issues must be taken into account at this stage. For instance, Davenport (1998) analyzes the decision from the point of view of the compatibility between the organization and the characteristics of the ERP systems.

Hecht (1997) presents criteria that may help in this choice: adjustment of the package’s functionality to the requisites of the company, technical architecture of the product, implementation costs, quality ofpost-sales support, and financial health of the vendor and its vision for the future of the package. The main product of this stage is a detailed implementation plan, where the modules to be implemented, the implementation approach, the project schedule, the implementation team and responsibilities are defined. Also, it is very common to hire a consulting company during the implementation project, for tasks that range from development of customizations to full responsibility for project management, depending on the case and the knowledge available in the company.

ERP systems Implementation

Implementation comprises the second stage of the ERP systems’ life cycle. The implementation of an ERP system may be defined as the process by which the system’s modules are put into operation within a company. Implementation entails adjustment of the business process to the system, configuration and eventual customizing of the system, loading or conversion of initial data, hardware and software configuration and training of users and managers. This stage encompasses the tasks ranging from the end of implementation plan’s concept to the beginning of the operation.

Figure 1. ERP systems life cycle model

ERP systems life cycle model

The implementation stage is reported to be the most critical of all (Bingi, Sharma & Godla, 1999). Difficulties are mainly due to organizational changes that imply in changes of tasks and responsibilities of individuals and departments and transformations in the relationships between different departments. In an ERP system implementation it is generally pursued the optimization of the global processes of the company, which may cause as a counterpart changes in the activities in most of the departments involved. The need of intense participation and commitment of the company’s top management and the requirement of permanent communication among the involved units is brought about by the size and complexity of this change and of the conflicts it may generate among those involved.

Adjusting the ERP system to company’s processes is part of the implementation stage and is achieved by adjustment of parameters (configuration) or software customization (development of programs to modify or complement existing functions). At the implementation stage, the decision on how to start the operation of the ERP system (the “go-live”) is also important. All modules may start operating in all divisions or plants of the company simultaneously (big bang) or in one division or plant after the other (small bangs). The start may also occur in phases (one or some modules start operating in one division or plant after the other, also called roll-out). The approach used to start the ERP system operation is an important decision in its implementation project as it greatly affects the configuration of the system, the allocation of resources and the management of the proj ect and its risks. It also plays a decisive role at all stages of ERP system’s life cycle.

ERP systems’ integration entails difficulties for the ERP systems implementation stage. These difficulties are related to three types of changes in the way people do their work (Souza & Zwicker, 2001):

(1) The integration transfers to departments that produce the information the responsibility to insert it properly. This includes data used by other departments only (for instance, typing of an accounting bill in a production entry) and as a consequence the users feel that their tasks are increased.

(2) Information must be inserted into the system at the best-suited moment for the process and not at the best-suited moment for a specific department. Thus, there is a need to change the way which tasks are carried out and other departments begin to demand the information they rely upon.

(3) The activities of a department become transparent to all others and this has the inconvenience to require “explanations” for everything it does.

Training of end users for working with an integrated system is an important consideration for the success of the implementation process.

stabilization

In the first moments after the beginning of the ERP system operation there is a critical stage for the project’s success: the stabilization. At this moment, the ERP system, that until then was only an abstraction, gains reality and starts to be part of company’s and people’s daily lives. This is when the highest amount of energy, be it managerial or technical, is required. It is a stage in which problems that could not have been easily detected at the implementation stage become apparent. This is a particularly critical stage, as the company is already relying upon the system for its activities and which causes major pressure for quick solution of problems. The length of this period depends on the company and takes about eight weeks (Zwicker & Souza, 2004).

The exact characterization of this stage is related to the operation starting mode chosen by the company. If operation of the ERP system started by means of a big bang, the stage of stabilization can be clearly distinguished from those of implementation and utilization. However, in companies that implement the modules in phases, or even in small-bangs, the stabilization stage is less characterized and merges with the implementation stage of the remaining modules. It can be stated that the stabilization stage in the case of implementation by phases starts with the operation of the first module and ends only when the last module implemented, in the last locality of the company, becomes stabilized. This longer implementation and stabilization time in general entails loss of focus of the project and may be viewed as a risk factor for the implementation in phases (for further details on the influence of ERP go-live approach on its life cycle, see Zwicker & Souza, 2004).

Utilization

Finally, at the fourth stage the system starts to belong to day- by-day operations. This does not mean that all its possibilities of usage are already known, nor that they are properly equated. Orlikovski and Hofman (1997) report on the difficulty within a company to know beforehand all use possibilities of the new information technologies. This knowledge is only achieved after a certain period of continued use of the technology, through the ideas that emerge during the utilization process. Therefore, the stage of utilization feeds back the stage of implementation with new possibilities and needs that may be solved through new modules, parameter adjustments or software customizing. In the case of implementation in phases, the already implemented modules may impose restrictions upon new modules caused by already defined parameters or customizations. Markus and Tanis (2000) point out that it is only in this stage that the organization is finally able to ascertain the benefits (if any) of its investment in the ERP system, due to continuous business improvement, additional user skill building, and post implementation benefits assessment. Also at this point, companies begin to consolidate their process reviews and effectively employ a model of integrated process management.

This stage can also be viewed as an evolutionary process. For instance, Botta-Genoulaz and Millet (2005) present a model to asses the ERP use maturity in three stages: mastery of the software, it is, the acquisition of the technical and operational knowledge about the ERP sy stem; improvement, when the company has enough knowledge to effectively use the ERP systems for processes redesign and integration; and evolution, when it is possible to effectively align the ERP use to business strategies.

ERP Management

After its implementation, the ERP system becomes a critical component of the integrated management of diverse company areas and of supply chain management, which demands compliance with extreme availability and performance requirements. According to Zwicker and Souza (2006), ERP management encompasses the set of actions undertaken to ensure meeting the business needs, the performance, availability and control of the maintenance and operation costs. ERP systems management includes the activities of development (implementation and evolution of the system), operation (keep the system operation within the specified parameters of performance and availability), support (user services) and planning. Many of these tasks may be performed by the IT staff in cooperation with users (for example, the first instance of problem resolution may be done by users with good knowledge of the ERP system), as well as with outsourced personnel and consultants.

Esteves and Pastor (1999) also point out an interesting phase of the life cycle of ERP systems, the “retirement” stage, in which the ERP system would be substituted for other solution or solutions. What is being observed is that companies go through great efforts and costs each time a new version upgrade is needed (McMahon, 2004). Every time the decision to upgrade or not is posed to the organization it is also an opportunity to analyzing other ERP vendors or technologies (Kremers & van Dissel, 2000).

FUTURE TRENDs

The ERP Market has changed considerably since the 1990′s.

After a period of huge expansion based on sales for new clients who were manly large companies, the market stabilized and a series of mergers and acquisitions occurred. Vendors are now looking for new ways of increasing their revenues. Although the idea of one single system for the whole enterprise has not been reached yet, ERP vendors are incorporating new functionalities that comprise front-office and external integration tasks in their systems. Also, companies in sectors not traditionally related to ERP, like finance, services and universities are beginning to implement it (McGhaughey & Gunasekaran, 2007). Another trend is the focus on the small and medium enterprise (SME) market.

The implementation of whole ERP systems in these companies poses great challenges to vendors, due to the lack of financial, human and knowledge resources these companies usually present. Vendors are also struggling to innovate and incorporate new technologies and trends, like collaboration, business process management, service-oriented architectures (SOA), and business intelligence (Wailgum, 2007).

There are also challenges related to the management of IT in an ERP system context. An important option many ERP users are adopting is participating in user groups. This can be understood as an alternative strategy to obtain the knowledge needed to keep the ERP system up to date and better aligned with business needs.

conclusion

This chapter presented an extended model for ERP systems life cycle that tries to encompass the complexities involved in implementing ERP systems in companies. To achieve this purpose, several aspects relating to the decision and selection, implementation, stabilization, utilization, and ERP management stages were presented.

The recommendation for companies that are deciding for ERP systems utilization and for companies that are already in the implementation stage is the careful analysis of the difficulties associated which each ERP systems’ life cycle stage. With a better knowledge about these difficulties, the process can be improved though better planning and better action on the inherent difficulties of such an organizational change. One critical factor for success is to avoid it to be handled as an IT project (Willcocks & Sykes, 2000). Dedication and involvement of top management, strong participation of users and change management were aspects considered essential for the success of ERP systems implementation projects (Bingi, Sharma & Godla, 1999).

KEY TERMs

ERP Systems: Integrated information systems purchased as commercial software packages with the aim of supporting most operations of a company.

System Development Life Cycle: The various stages through which a project of development and utilization of information systems passes.

ERP Systems’ Life Cycle: The various stages through which a project of introducing an ERP system in a company passes through.

ERP Decision and Selection Stage: Stage at which the company decides to implement an ERP system and chooses the supplier.

ERP Implementation Stage: Stage of an ERP project at which the ERP system’s modules are put into operation.

ERP Stabilization Stage: The first weeks after the beginning of an ERP system operation in the company.

ERP Utilization Stage: Stage of an ERP project at which the system starts to belong to the day-by-day operations of the company.

ERP Management: The group of actions carried out to ensure the fulfillment of business requirements, the performance, the availability and the control of maintenance and operation activities of ERP systems.

Big-Bang Approach: Implementing all modules of an ERP system in all locations or plants of the company simultaneously.

Phased Approach: Implementing the modules on an ERP system in sequential steps, comprising one or more modules in one or more locations or plants, until the system is completely installed. It is also called roll out.

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