Potential Impact of Cultural Differences on Enterprise Resource Planning (ERP) Projects

Over the last ten years, there has been a dramatic growth in the acquisition of Enterprise Resource Planning (ERP) systems, where the market leader is the German company, SAP AG. However, more recently, there has been an increase in reported ERP failures, suggesting that the implementation issues are not just technical, but encompass wider behavioural factors. This conceptual paper examines the role of culture in the implementation of process-oriented ERP systems, and reports on the formulation of a research project to examine the relevance of macro and micro-level cultural issues in the successful operation of such systems. The paper suggests that some of the reported ERP problems may be attributed to the difficulties that staff operating in an Anglo-Saxon culture may experience with a process rather than function-oriented working environment. 1 What is culture? 1.1 Literature Review In his review of the many definitions of the concept of culture, Olie (1995) concludes that most authors agree on the following characteristics: • culture is not a characteristic of individuals, but of a collection of individuals who share common values, beliefs, ideas etc. These collections may include family, occupational, regional or national groups; • culture is learned. People learn the culture of a group when they become a member; • culture has a historical dimension. A particular nation’s culture develops over time and is partly the product of that nation’s history, its demographic and economic development, its geography and its ecological environment. • culture has different layers. Hofstede (1991) distinguishes four different layers of culture i.e. symbols, heroes, rituals and values Sorge (1995) compared organisational structures of manufacturing sites that were similar in size and technology use in the United Kingdom (UK), Germany (D) and France (F). Table 1 summarises a number of quantitative measures describing the shape of the organisations. EJISDC (2001) 7, 5, 1-8 2 Table 1: Overall view of administrative structures in the UK, Germany (D) and France (F) Low Medium High Tallness of hierarchy D UK F Functional differentiation D UK F Share of white-collar employees D UK F Supervisory span of control D UK F Administrative and commercial personnel/workers D UK F Authority positions/workers UK D F Authority positions/white-collar workers UK F D The conclusions were: German sites came across as having very ‘lean’ and simple structures, the hierarchy being strong but short. There is a tendency to restrict the growth of any component that is separate from direct production and the line of authority. French organisations tended to have tall hierarchies with large numbers of people in managerial, supervisory, administrative and specialist positions. British companies tended to have medium-sized components on most counts, except that they had the smallest numbers of people specifically classified as having line authority. Hampden-Turner and Trompenaars (2000) have identified six dimensions of cultural diversity, with the first being: Universalism – Particularism. The difference is summarised as: Universalism searches for sameness and similarity and tries to impose on all members of a class or universe the laws of their commonality. Particularism searches for differences, for unique and exceptional forms of distinction that render phenomena incomparable and of matchless quality. They go on to discuss culture clashes and derivative conflicts in business and industry by emphasising the differences between the schools of scientific management (Taylor, 1947) and human relations (Roethlisberger and Dickson, 1939) and state: While scientific management is now discredited, “operations research” and more ominously “re-engineering” have taken their toll on human relations in the workplace. In their view, Universalism – Particularism elucidates the two contrasting strategies of developing core competence and getting close to the customer. The literature on culture provides a set of general concepts and ideas as a way of looking at the world. However, the typologies of culture have inherent weaknesses e.g. they do not reflect the variety of values and attitudes that may exist in a country, nor do they explain how cultures have developed over time. These limitations will need to be borne in mind, as we consider potential cultural impact on the use of information systems, particularly enterprise resource planning systems. EJISDC (2001) 7, 5, 1-8 3 2 What are Enterprise Resource Planning (ERP) systems? 2.1 ERP Systems: Background Enterprise Resource Planning (ERP) systems may be defined as the implementation of standard software modules for core business processes, usually combined with bespoke customization for competitive differentiation. For many organisations, such development may begin with a single pilot project, or within a single business function. However, potential for extension to corporate-wide and/or global integration remains a key factor of an ERP implementation. This may be achieved via a Business Process Re-engineering (BPR) exercise, which can be viewed as the prologue to the implementation of the project. Commercial off-the-shelf software has been available since the 1960s, with companies preferring to buy rather than build their information systems in order to minimize the risks historically associated with bespoke development. However, an ERP system is more than the use of stand-alone pre-written software. It is a change management initiative, which encompasses a review of business processes across the whole organisation, requiring careful management of the associated human factors. The last ten years have seen a dramatic growth in the use of ERP systems, particularly by world-class organizations eager to develop an international information systems strategy. The market leading ERP vendor is the German company SAP AG, who offer their latest mysap.com (former R/3 system), encompassing enterprise integration of information systems as well as e-commerce operations. Key drivers in this trend can be summarized as: • Globalisation of business; • Legacy systems and Year 2000 system concerns; • Increasing national and international regulatory environment e.g. European Monetary Union; • BPR and the current focus on standardisation of processes e.g. ISO9000; • Scaleable and flexible emerging client/server infrastructures; • Trend for collaboration among software vendors; • Trend to E-Business. ERP is often viewed as a different paradigm for information systems development, because of the following differentiating factors: • The integration of business functions; • The management of change and political issues associated with BPR projects; • The number and variety of stakeholders in any implementation project; • The high cost of implementation and consultancy; • The consequent configuration of software representing core processes; • The enhanced training and familiarisation requirement. Historically, packaged software was seen to fulfil specific functional roles in an organisation, while ERP systems, consisting of standard multi-functional, multi-language, multi-legislative software modules, offer process integration across an entire organisation. This important EJISDC (2001) 7, 5, 1-8 4 distinction between a function and process view of an organisation’s structure is shown in Figure 1. Figure 1: Function vs. Process View of an Enterprise Adapted from: Keller et al, 1995: p2 Davenport (2000) argues that companies are doing more than installing a computer system with ERP projects, but are in fact, changing the way the company is organised and often acting against the prevailing company culture. Ezingeard and Chandler-Wilde (1999) found few examples that involve ERP systems as a source of business advantage. In fact, there have been some notable reported failures e.g. Dell Computers, Dow Chemicals, Fox-Meyer and Mobil (Davenport, 1998). The problems with the SAP R/3 project at Fox-Meyer has led to bankruptcy and litigation proceedings (James, 1997). A Gartner group survey (Hunter, 1999) was carried out in 1300 European and American companies and found that 32% of ERP projects were delivered late. 2.2 ERP Systems: Function vs. Process Perspectives Standard software for business applications was first introduced in the 1970s, commencing with financial and personnel applications, followed by sales, order processing, MRP and MRP II. The main aim of these software products was to support business applications in a functionally oriented organisation. The result was the growth of functional islands of information, with functional rather than process optimisation. Hence, from a process perspective, organisations had to operate at sub-optimal levels within these information islands. Attempts to avoid this sub-optimal situation and to come closer to an overall optimum, started in Germany with the introduction of firstly, an Integrationsmodell (Grochla, 1968; Grochla, 1969) and much later, Computer Integrated Manufacturing (CIM) (Scheer, 1987). These developments had a highly mechanistic focus to information processing. So it was no Order processing New product development