THE CHALLENGES FACING GLOBAL ERP SYSTEMS
IMPLEMENTATIONS
Paul Hawking, Andrew Stein
Institute of Supply Chain and Logistics
Victoria University, Ballarat Rd. Street, Foostcray, Melbourne, Australia
Susan Foster
Faculty of Information Technology, Monash University
Keywords: ERP Systems, Enterprise Wide Systems, Global.
Abstract: Large global companies are increasing looking towards information systems to standardise business
processes and enhance decision making across their operations in different countries. In particular these
companies are implementing enterprise resource planning systems to provide this standardisation. This
paper is a review of literature which focuses on the use of ERP systems to support global operations. There
are many technological and cultural challenges facing these implementations. However a major challenge
faced by companies is the balance between centralisation and localisation.
1 INTRODUCTION
There has been a significant growth in international
corporate operations. For most companies this has
been to take advantage of new opportunities or to
leverage existing operations. While there is no
golden rule” as to how these international
operations should be implemented or managed.
Michael Porter (1986) in his book “Competition in
Global Industries” classifies the various global
strategies adopted by different corporations along a
continuum from multi-domestics through to multi-
nationals. According to Porter (1986) multi-
domestics refers to offshore operations operating
independently and are based upon local business
processes supported by a local infrastructure. At the
other end of the continuum are multi-nationals;
where operations are integrated globally, based on
standardised business processes with the ability to
account for local differences. Bartlett and Ghoshi
(1998) also identified a continuum consisting of four
strategies which could be employed to support
global operations. These strategies are multinational,
international, global and transnationals. The
continuum reflects increasing level of integration
and control between the various global strategies. At
one end of the continuum are multinationals which
by definition are similar to Porter’s (1986) “multi-
domestics”. The authors argue that this strategy
provides flexibility to respond to domestic
opportunities. While the international strategy
allows subsidiaries a level of autonomy but it also
provides for the diffusion of the parent company’s
knowledge and practices throughout the
organisation. In a global strategy there is centralised
coordination and control involving standardisation
of all aspects of the value chain. Transnationals are
the final strategy in the continuum and supports
standardisation and a high level of integration across
the organisation, while at the same time achieving
the balance between flexibility and sensitivity to
local needs.
2 GLOBAL INFORMATION
SYSTEMS
Underpinning the level of integration and control in
each of these strategies is the role of information
systems (IS). This is supported by many authors who
believe that a catalyst for global operations has been
the improvement in the IS and the technological
415
Hawking P., Stein A. and Foster S. (2007).
THE CHALLENGES FACING GLOBAL ERP SYSTEMS IMPLEMENTATIONS.
In Proceedings of the Ninth International Conference on Enterprise Information Systems - DISI, pages 415-422
DOI: 10.5220/0002359604150422
Copyright
c
SciTePress
infrastructure that supports the systems (Markus et al
2001; .Ives and Jarvenpaa, 1991; Konsynski and
Karimi, 1993). Barlett and Ghoshai (1998) argue
that companies operating in a global market will be
at strategic disadvantage if they are unable to control
and coordinate their world wide operations.
The basic purpose of an information system is the
provision of information to support decision making.
Accordingly the improved flow of information
provides companies with the ability to better
coordinate and manage their operations while at the
same time providing increased visibility to their
global supply chain (Sheu et al, 2003). Traditionally
this flow of information has been hindered due to a
number of factors including; technological
infrastructure, poor and disparate systems and lack
of standardisation. Most international companies
operated in a relatively autonomous nature from
country to country and the supporting IS were
managed developed in a similar way. However a
number of authors argue that it is critical for global
operations to have a centrally managed and
coordinated IT infrastructure (Freeman, 1985;
Carlyle, 1990). Accordingly companies developing
IT strategies to facilitate their global operations has
resulted in the emergence of global information
technology solutions.
Ives and Jarvenpaa (1991) define these types of
applications as information systems that:
Contribute to achieving a firm’s global
business strategy
Utilise information technology platforms to
store, transmit and manipulate data across
cultural environments.
They went further and identified a number of drivers
for global IT applications. These include:
Global consumer/customer
Corporate customers have operations in
numerous locations or due to consumers’
mobility, access to centralised systems is
required. This would be relevant in airline,
credit card, accommodation related
companies.
Global Product
The IT infrastructure supports the sales of
the same product in numerous locations, or
the products and/or their components are
produced via subsidiaries across the world.
Rationalised Operations
Subsidiaries are located to take advantage
of local opportunities, where increased
coordination and control is required.
Flexible Operations
Due to local opportunities, operations are
moved from location to location. This is
facilitated by standardised IT
infrastructure.
Joint Resources
Shared services enable subsidiaries to
standardise business practices and gain
efficiencies through shared resources such
as personnel and facilities
Duplicate Facilities
Companies duplicate facilities in different
locations including the IS infrastructure, to
standardise practices and improve
coordination and control by management.
Scarce Resources
IT infrastructure can facilitate the sharing
of scarce resources and expertise across
international boundaries.
Risk Reduction
Access to relevant information related to
global operations in relation to supply
chain management, currency conversion,
global markets and business partners can
alleviate possible risks.
Legal Requirements
Legislated information requirements in one
or more countries can be consolidated.
Economies of scale for systems
Global IT infrastructure through the
standardisation and consolidation of
business processes can facilitate the
reduction in IT systems and supporting
personnel. (Ives and Jarvenpaa, 1991)
Although the benefits of global expansion have been
documented, researchers have identified a range of
factors which impact on business in an international
context and therefore should be strategically planned
for. These include the impact of culture, language,
customs, politics, management style, and legal
requirements (Simchi-Levi et al, 2000; Hofstede,
1983). Accordingly if a global IT infrastructure is to
be implemented, then these issues need to be
understood in terms of their impact on this
infrastructure. Cash (1988) identified a number
problems associated with global IS solutions such
as, language, currency, culture, national
infrastructure, availability of IT staff, data export
control trade unions and IT vendors support.
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3 ENTERPRISE RESOURCE
PLANNING SYSTEMS
The predominant information system implemented
to support the various business processes in large
corporations is an Enterprise Resource Planning
(ERP) system. ERP systems are information systems
which are enterprise wide, modular, integrated and
have broad business functionality (Hawking, 2005).
An alternate definition is
‘'An Enterprise Resource Planning (ERP)
software application package is a suite
of pre-
engineered, ready-to-implement, integrated
application modules, catering to all the
business functions of an enterprise and
possessing the flexibility for configuring and
customizing dynamically the delivered
functionality of the package to suite the
specific requirements of the enterprise. ERP
enables an enterprise to operate as an
integrated
, enterprise wide, process-oriented,
information-driven
, and real-time enterprise."
(Klause et al, 2000)
Due to the purported benefits of ERP systems, many
companies consider them as essential information
systems infrastructure to be competitive in today’s
business world and provide a foundation for future
growth. A survey of 800 top US companies showed
that ERP systems accounted for 43% of these
companies’ application budgets (Somer & Nelson,
2001). The market penetration of ERP systems
varies considerably from industry to industry. A
report by Computer Economics Inc. stated that 76%
of manufacturers, 35% of insurance and health care
companies, and 24% of Federal Government
agencies already have an ERP system or are in the
process of installing one (Stedman, 1999). The
purported benefits of ERP systems make them an
essential information systems infrastructure to be
competitive in today’s business world and provide a
foundation for future growth. The ARC Advisory
Group (2006) estimated that the worldwide market
for ERP systems was $16.67 billion in 2005 and is
forecasted to surpass $21 billion in 2010.
Researchers believe the growth in the uptake of ERP
systems is due to several factors; the need to
streamline and improve business processes, better
manage information systems expenditure,
competitive pressures to become a low cost
producer, increased responsiveness to customers and
their needs, integrate business processes, provide a
common platform and better data visibility, and as a
strategic tool for the move towards electronic
business (Davenport et al, 2003; Hammer, 1999;
Iggulden, 1999; Somer et al, 2001; Markus et al,
2001).
Increasingly due to the integrative nature of ERP
systems and their ability to incorporate “best
business” practice many large corporations are using
these systems to underpin their international
expansion. The systems can facilitate the control and
coordination of various international operations in
real time. This coordination and control can occur
through the implementation of standardised business
practices, independent of location, language, time
and currency (Bingi et al, 1999; Madapusi and
D’Souza, 2005). Texas instruments with 13,000
users worldwide, 45,000 products and 120,000
orders per month implemented an ERP system to
support their operations. The system enabled the
company to standardise business processes, leverage
supply chain efficiencies and achieve a response
time of less than a 3 seconds (Sarkis and Sundarraj,
2003). In the Australasian region companies like
BHP Billiton, Fonterra, Monash University, Carter
Holt Harvey, Bluescope Steel and National Australia
Bank are using ERP systems to support their global
operations.
For many companies underestimating the impact the
system would have on their organization, caused
them to initially struggle with their ERP
implementation. For some the barriers associated
with the lack of skilled resources and inexperience
with projects of this scope became insurmountable
(Calegero, 2000). Davenport (2000) believes that
ERP systems by their very nature impact on a
company’s business strategy, organisation and
culture. The move to become process rather than
functionally focused and the resultant need for
business process integration can result in a loss in
competitive advantage in particular areas. However
the potential benefits across the entire organisation
often outweighs the losses in individual areas
(Holland and Light, 2001). Many researchers have
attempted to identify the critical success factors
which impact on the successful implementation of
an ERP system (Holland and Light, 1999; Sumner,
1999; Summer, 2000; Shanks et al, 2000; Esteves,
Casanovas,and Pastor, 2003
).
THE CHALLENGES FACING GLOBAL ERP SYSTEMS IMPLEMENTATIONS
417
4 CHALLENGES IN GLOBAL
ERP IMPLEMENTATIONS
Although the potential benefits of global ERP
systems implementation have been documented
these types of implementations are faced with a
number of issues. The critical success factors of ERP
implementations identified previously in the paper
are predominantly based on research on a particular
ERP system in a particular country. Very little
research discusses the relevance of these factors in
global implementations and obviously there is a
need to validate these. A number of authors rather
than identifying CSF’s in global implementations
have identified what could be termed as
challenges”. The remainder of this paper discusses
these challenges.
5 ALIGNMENT OF GLOBAL
AND ERP STRATEGY
This is the most important challenge facing
companies when implementing their ERP system.
Much has been written about the importance of the
alignment of corporate and IT strategies (Scott
Morton, 1991; Broadbent and Weill, 1993; Teo and
King, 1997). Previously the various global strategies
companies could adopt for their international
operations were discussed. Each strategy differs in
the level of integration and control. Accordingly
ERP systems can be implemented differently to
support each of these strategies. Markus et al (2000)
argues that ERP system implementation at
geographically dispersed locations adds to the
complexity of such systems in terms of management
and technical infrastructure. However companies
should focus on the strategic issues before
addressing the technological issues. Clemmons and
Simon (2001) developed a framework for ERP
implementation based on the level of control and
coordination required in global organisation.
Madapusi and D’Souza (2005) delve deeper and
discuss the variations in ERP systems configuration,
architecture and roll out to support various global
strategies. They argue that unless there is an
alignment between a company’s international
strategy and their ERP system, it can result in
unsuccessful ERP implementations and suboptimal
performance. This was further supported by
Clemmons and Simon (2001).
Koch (2001) identified four levels of ERP
configuration which should be considered in support
of the various international strategies; the enterprise
level, system level, business process level and
customization level. These are discussed briefly
below:
1. Enterprise level: from an international
perspective ERP systems can be configured
around: single financial/single operation,
single financial/multi-operations, multi-
financials/single operations and multi-
financials/multi-operations.
2. System level: this reflects the implementation
of particular modules such as financials,
logistics and human resources
3. Business process level: within each module
business processes can be configured to
represent current practices or “best business”
practices
4. Customisation: although not recommended
this involves modifying the ERP system to suit
a company’s needs.
Furthermore Clemmons and Simon (2001) identified
three common IT infrastructure configurations
which support ERP systems in a global scenario.
These are centralised, distributed and hybrid
architecture,
1. Centralised architecture: This type of
architecture suits companies who want to
achieve a high degree of standardization of
data and business processes. An example in
the Australasian region would be Fonterra.
Fonterra, is one of the largest dairy companies
in the world. Their supply chain extends from
New Zealand to customers in 140 countries
(Fonterra A, 2004). To support their supply
chain, the company has sites in 40 countries
and a work force of more than 20,000; and
implemented an ERP system. The company
decided to have a single implementation of
their ERP system (instance) in New Zealand.
This is based on a global template which has
restricted localisation in each of the 40
countries where it will be rolled out. This
ensures standardised definitions and business
processes throughout the company. This will
facilitate the information flow and thus
improve reporting and decision making
(Fonterra B, 2004). The adoption of a global
template to standardise operations is a well
established strategy to ensure improved
coordination and control and the more changes
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which are made to this template to address
local issues results in less control and
coordination (Hanseth et al, 2001).
2. Distributed architecture: This architecture
suits companies who have a number of
autonomous business units where data
definitions and business processes reflect
domestic needs. However this increases the
difficulty of information sharing across the
organization. Toyota have adopted this type of
architecture worldwide allowing its various
international operations to implement their
choice of IS solutions to capitalise on local
opportunities.
3. Hybrid architecture: This is a combination of
both the previous architectures with some
components being centralised to gain
standardisation and efficiencies while at the
same time allowing some localisation. BHP
Billiton implemented this type of architecture
to ensure standardisation and facilitate the
flow of information and to implement a shared
services facility, while at the same time
accounting for local business processes
(Warren, 2002).
As mentioned previously the alignment of the global
operations strategy and the ERP systems strategy is
critical to the effective use of these types of systems.
However there are other challenges identified by the
literature which is implicit in the above
implementation configurations and need to be
considered.
5.1 Centralisation versus Localisation
Global organisations by implication require the
sharing of data and information across their various
operations to facilitate control and coordination.
ERP implementations are designed to facilitate this.
However there are many challenges which can
hinder this communication. This can include
problems with different languages, government
regulations, inconsistent data format, and non
compatible business processes and other cultural
issues (Hanseth et al, 2001; Sheu et al, 2003; Soh et
al, 2000; Robinson, 2000; Ghosh, 2002; Ives and
Jarvenpaa, 1991). These issues need to be
considered during the configuration and
implementations of ERP systems and usually results
in the degree of localisation of the ERP system.
From a language point of view many of the modern
ERP systems can operate in various languages and
enable the user to determine the language of
preference at the time of logging on. Sheu et al
(2003) found the issue more related to the reluctance
of employees to communicate in different languages
rather than a fault of the ERP system. This was
further reinforced by the difficulty in sharing
information between China and Taiwan operations
due to diplomatic implications.
However, more of an issue is the difficulty in the
sharing of information between operations which are
due to inconsistent data formats. This can especially
occur as the level of localisation of the ERP system
increases. Companies initially implement ERP
systems to integrate existing disparate systems to
facilitate the flow of information (Delliote, 1998;
Wood and Caldas, 2000). However this lack of
integration can still occur between ERP systems due
to different data definitions and variations in
business processes. The lack of standardisation
between ERP systems has resulted in many
companies moving to a more centralised control and
coordination through the use of a global template to
facilitate data sharing. This template provides
standardised definitions for data and business
processes across the corporation.
Much of the literature argues against the extensive
use of global templates due to the lack of flexibility
at the local level to take advantages of regional
opportunities and to account for cultural differences
(Hanseth et al, 2001; Liang et al, 2004). Krumbholz
et al (2000) investigated cultural differences
between a large pharmaceuticals company’s
operations in the United Kingdom and Scandinavia.
They found differences in how the ERP system
should be implemented to take into account different
legislative requirements in each country; they did
not find any significant cultural differences.
However other researchers (van Everingdon and
Waarts, 2003) using Hofstede’s (1983) model of
cultural differences studied the adoption of
innovation, in particular ERP systems, across
different European cultures. They found that
national culture does impact on the adoption of ERP
systems and more specifically that there would be a
negative impact in countries with higher levels of
uncertainty avoidance, masculinity, and power
distance. (explain these?
Some authors argue that these cultural differences
are further exacerbated when comparisons are made
between eastern and western countries (Martinsons,
2004; Huang and Palvia, 2000). Liang et al (2004)
THE CHALLENGES FACING GLOBAL ERP SYSTEMS IMPLEMENTATIONS
419
goes further and addresses the applicability of
western designed ERP systems to China. They argue
that these systems are based on “rule based” mature
economies rather than relation based governance
systems like China. However the leading ERP
system, developed by a German company (SAP),
accounts for approximately 33% of the China ERP
market(Martinsons, 2004) and has had a 95%
increase in sales over a 12 month period (McBride,
2004). Sheu et al. (2003) noted there was confusion
between western and eastern name formats. It was
not the inability of the system to cope with the
formats but rather a lack of understanding about the
format it self. Wu and Wang (2002) compared the
implementation of locally developed ERP systems to
foreign developed ERP systems in Taiwan and the
impact on user satisfaction. As would be expected,
they found significantly higher satisfaction for the
local system as it would reflect the local user
preferences. Davison (2002) supports this divide
between east and west by arguing that the majority
of ERP vendors are western and therefore don’t
support various aspects of eastern culture. He uses
simplistic examples to support his argument such as
the automatic allocation of numbers by the system
which maybe offensive homonyms. Also, how the
majority of reports in ERP systems tend to be online
while Asian workers prefer paper based reports.
Carton and Adam (2003), although recognising the
importance of global standardisation, stress the
importance of incorporating local differences. They
believe that central standardisation of the ERP
system can “wreak havoc” in local operations and
see this upheaval as not being beneficial to the local
operations or the global corporation.
6 CONCLUSION
Most of the literature addresses the impact of
potential cultural differences on ERP
implementations. However a distinction needs to be
made between the implementation of ERP systems
versus the use of these systems. The cultural issues
identified need to be seen as a consideration during
implementation rather than a barrier to
implementation and use. However a balance needs
to be reached between the level of centralisation and
localisation. We would argue that this is not due the
ERP systems inability to support local processes but
more a lack of understanding of how an ERP system
can be configured to support the cultural differences
between company’s different country operations.
This results in companies adopting a centralised
architecture to improve coordination and control.
However with an increased understanding of the
capabilities of an ERP system, companies will move
to a hybrid strategy, as identified by Clemmons and
Simon (2001), to take advantage of local
opportunities through the use of localised processes.
This will be done in such a way to still enable the
efficient flow of information throughout the
corporation.
This review of literature has focussed on the use of
ERP systems to support global operations. Although
many challenges to these implementations have been
identified in the literature, this paper has focused on
the issues of centralisation versus localisation. Table
2 provides a summary of the challenges to global
ERP implementations and the supporting literature.
Table 1: Challenges to global ERP Implementations.
Challenges Research
Alignment of Global Strategy
and IT strategy
Light, 1999; Clemmons and Simon, 2001; Koch, 2001; Markus and Tanis,
2000; Ives and Jarvenpaa, 1991; Madapusi and D’Souza, 2005
IT Solution Selection
Davison, 2002; Ghosh 2002; Wu and Wang 2002;
Ives and Jarvenpaa, 1991;
International Data Sharing
Hanseth et al,2001; Soh et al, 2000; Huang and Palvia 2001 Sheu et al, 2003;
Soh et al., 2000; Robinson, 2000; Ghosh, 2002; Sahay, 2003; Ives and
Jarvenpaa, 1991;
Culture
Huang and Palvia, 2001; Zhang et al, 2003; Kay, 1998; van Everingdon and
Waarts, 2003; Davison, 2002; Liang et al, 2004; Sheu et al, 2003; Reimers,
2003; Ghosh, 2002; Ives and Jarvenpaa, 1991;
Local Business Processes
Soh et al, 2000;Ghosh, 2002; Ives and Jarvenpaa,1991; Carton and Adam,
2003
International Cooperation Sheu et al, 2003; Ghosh, 2002; Ives and Jarvenpaa, 1991;
Technological Infrastructure Markus et al, 2000; Ghosh, 2002; He, 2004; Ghosh and Gosh, 2002;
Resource Availability He, 2004; Ghosh, 2002;
ICEIS 2007 - International Conference on Enterprise Information Systems
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