Life Cycle of ERP Systems

INTRODUCTION

The 90′s witnessed an impressive growth of Enterprise Resource Planning (ERP) systems in the market of corporate IT solutions. For instance, O’Leary (2000) reports that a single ERP system (SAP’s R/3) is used by more than 60% of the multinational firms. Among the explanations for this phenomenon are the competitive pressures suffered by the companies that have forced them to seek alternatives for cost reduction, differentiation of products and services and integration of their business processes. The ERP systems evolved exploiting the need for quick deployment of integrated systems to meet these new business requirements, while companies were (and still are) under pressure to outsource all the activities that are not embraced by their core business.
The ERP systems are introduced in companies following some well-defined stages. In this context, their life cycle encompasses the stages of decision, selection, implementation, stabilization and utilization. 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 with the aim of 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. Although companies may internally develop systems with similar characteristics, the term ERP is associated to commercial packages. Examples of ERP systems found on the market are the R/3 of the German company SAP and the PeopleSoft EnterpriseOne of the American Peoplesoft. Some authors present and describe characteristics that, if taken as a whole, permit to differentiate the ERP systems from systems developed within the companies and from other types of commercial packages (Souza & Zwicker, 2001; Markus & Tanis, 2000). 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 the integration of business processes, the increase of possibilities to control the company’s operations, the technological updating, IT cost reduction and access to quality information in real time for decision taking (spread over the complete production chain). However, there are also problems to be considered. Table 1 synthesizes the benefits and difficulties of the ERP systems mentioned by many authors (Lozinsky, 1998; Hecht, 1997; Bancroft, Seip & Sprengel, 1998; Davenport, 1998; Stedman, 1998; & Cole-Gomolski, 1998), and relates them to the characteristics of ERP systems.

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 project definition, system study, design, programming, installation and post-implementation stages (Laudon & Laudon, 2001). Two different approaches for system development are the waterfall model, where stages are executed sequentially and only once for each system, and prototyping, where the stages are repeated, refining an initial solution (prototype) until it can be used as the definition for the system to be built or as the system itself.

Table 1. Benefits and difficulties of ERP systems

In the case of use of commercial software packages, it is, prewritten and precoded application software programs commercially available for sale or lease, the stages must be considered in a different manner. 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 in relation to traditional systems development projects. But because of their large functional scope and their integration between its various modules, these differences are deepened. Some authors present models for the life cycle of ERP systems (Esteves & Pastor, 1999; Markus & Tanis, 2000; Souza & Zwicker, 2001). Souza and Zwicker’s model is shown in figure 1 and includes the stages of decision and selection, implementation, stabilization and utilization and is used next as a framework to present aspects involved in each stage of the life cycle.
(a) Decision and Selection
At the decision and selection stage the company decides to implement an ERP system as an IT solution and chooses the supplier. 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, the technical architecture of the product, the implementation costs, the quality of post-sales support, the financial health of the supplier, and his view of the future. 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.

Figure 1. ERP systems life cycle model

(b) Implementation

Implementation comprises the second stage of the ERP systems’ life cycle, although the term is also used to represent the full 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, eventual customizing of the system, the loading or conversion of initial data, hardware and software configuration, training of the users and managers and the offer for support and help. This stage encompasses the tasks ranging from the end of implementation plan’s concept to the beginning of the operation.
The implementation stage is reported to be the most critical ofall (Bingi, Sharma & Godla, 1999). Difficulties are mainly due to the organizational changes that imply in changes of the tasks and responsibilities of individuals and departments and transformations in the relationships among the 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.
The process of adjustment of the ERP system to the company’s processes is part of the implementation stage and is achieved by the adjustment of parameters or software customizing (development of programs to modify or complement the existing functions). At the implementation stage, the decision on how the start of the operation of the ERP system (the “go-live”) will take place 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 implement an ERP system 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 project and its risks. It will also play a decisive role at all the stages of the ERP system’s life cycle.
The integration of processes pursued by ERP systems entails difficulties for the implementation stage. These difficulties are related to three types of changes in the way people do their work (Souza & Zwicker, 2001):
1) The integration aspect 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 recorded 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 order and form in 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.
However, once these shortcomings are overcome, many users feel that they grew as professionals, since they start to have a broader view of the company’s activities and to have a clearer perception of their role and importance in business processes. Training of end users for the work at an integrated system, taking into account the quoted aspects, is an important consideration for the success of the implementation process.

(c) 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 the company and of the people’s daily life. 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 the speedy solution of problems. The length of this period depends on the company and takes about eight weeks (Zwicker & Souza, 2004).
Two critical aspects may be highlighted at this stage: difficulties of the end users and problems of the ERP system (in programs and their adjustment to the company). Regardless of the fact that users have been trained in functions of the new system, they operate slowly in the early moments as they have doubts and feel insecure about the appropriateness of their actions. Besides the difficulties of adjustment to the functions of the new system, there is the issue of the cultural adjustment of people to the requirements of work in an integrated environment. While users face these difficulties, the detection of errors in customized programs and parameter settings also take place, hindering the normal operation. The simultaneous occurrence of use difficulties and system faults, associated with the recent familiarity of the project team to the new system, make the identification of the problems real causes even more difficult at this stage.
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).

(d) Utilization

Finally, at the fourth stage the system starts to belong to the day-by-day operations. This does not mean that all its possibilities of usage are known, or that they are properly equated. Orlikovski & 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. Indeed, new modules should not imply in changes of already configured and operational modules, usually a difficult task.
It is also observed that some time after the beginning of the operation, the implementation of customizations or new modules becomes more difficult. New modules not included in the original plans or improvements in the ERP system exhibit difficulties, characterizing that the new situation is decidedly refrozen. As a rule, these difficulties are associated to changes in priorities of the company and of the IT department, to the appearance of new projects and to the difficulty to bring together again, all departments and users needed for the implementation of the wished changes. Therefore, there are implicit difficulties for the realization of the continued adjustment recommended by the above referenced authors. According to the authors’ model, knowledge of the possibilities and functionalities of ERP systems is only consolidated after the operation start, however, it was noted that companies have difficulties to implement new ideas and solutions at that stage. A possible explanation for this discrepancy may be the fact that the case analyzed by the authors dealt with a collaborative computer system that, although of great importance for the company under study, had less functional scope than an ERP system. Apparently, the high functionality of ERP systems and the impact they cause on the organization constitute inflexible barriers against the continued adjustment stage.
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. Esteves and Pastor (1999) also point out an interesting phase of the life cycle, 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 introduction of an ERP system changes the focus of the IT area. Normally the area evolves from a technical approach to a business processes approach. It is also apparent that the role of the users in the management of an ERP system is much more important and fundamental than in the case of internally developed systems.
There are also new challenges at the day-by-day management of IT in an ERP system context. For instance, maybe there are relationship problems with the supplier that demand the attention of the IT manager. Some of this type of difficulties apparently stem from the continued need of system updating that cannot always be strictly accomplished when the supplier sends new patches and releases. Indeed, the IT areas adopt alternative procedures to keep their updating efforts at levels consistent with their possibilities. Apparently, companies that possess ERP systems continue to be subject to the need of carrying out substantial upgrades requiring time and significant resources. At the time of internally developed systems, those aspects possibly were much less significant (Zwicker & Souza, 2004). A more detailed contextual analysis of this myriad of details opens an interesting possibility for future research in the ambit of the ERP utilization stage.

CONCLUSION

During the second half of the nineties, the implementation of ERP systems was one of the central points of attention regarding IT utilization in companies. History shows that implementation of ERP systems is not a simple matter since there are some reported failures (see Jesitus, 1997; Barker & Frolick, 2003).
Research on the subject, developed as from the end of the last decade, studied mainly the factors governing successful implementation and showed that a process of cultural change is involved. One critical factor for success is to avoid that the endeavor be handled as an information technology 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 these implementation projects (Bingi, Sharma, & Godla, 1999).
This chapter presented a 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 and utilization 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.

KEY TERMS

Big-Bang Approach: Implementing all modules of an ERP system in all locations or plants of the company simultaneously.
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 Systems: Integrated information systems purchased as commercial software packages with the aim of supporting most operations of a company.
ERP Systems’ Life Cycle: The various stages through which a project of introducing an ERP system in a company passes through.
ERP Utilization Stage: Stage of an ERP project at which the system starts to belong to the day-by-day operations of the company.
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. Also called roll out.
System Development Life Cycle: The various stages through which a project of development and utilization of information systems passes.