Optimization of Gaps Resolution Strategy in Implementation of ERP
Systems
Jānis Grabis
Information Technology Institute, Riga Technical University, Kalku 1, Riga, Latvia
Keywords: Fit-gap Analysis, ERP Systems, Customization, Optimization.
Abstract: Enterprise Resources Planning (ERP) systems are packaged applications developed by their vendors. Their
functionality is not specifically tailored to particular companies implementing these systems. Differences
between provided functionality and company’s needs are identified using fit-gap analysis. The paper
develops a novel optimization model for fit-gap analysis. The model yields an optimal gaps resolution
strategy, which defines type and timing of customizations made to resolve the gaps and decisions are made
with respect to the vendor’s software evolution roadmap. Thus, the model highlights trade-offs between in-
house customization and adoption of standard features yet to be released. The optimization results are
analysed depending on the company’s customization preferences and an application example is also
provided. The model allows for understanding and evaluation of relationships between the company
implementing the ERP system and the vendor of the ERP system.
1 INTRODUCTION
Enterprise Resources Planning (ERP) systems are
large software application used by companies to run
their business processes. The ERP systems typically
are packaged applications developed by software
vendors. Their functionality is not specifically
tailored to particular companies implementing these
systems. However, they have some degree of
flexibility and customization capabilities to
accommodate specific requirements. Companies aim
to select an ERP system best suited for their needs.
ERP selection methods (Jadhav and Sonar, 2009)
and fit-gap analysis (Gulledge, 2006) are employed
to identify the most appropriate ERP system.
Nevertheless, there are gaps between
functionality and capabilities provided and the
requirements, and these gaps need to be resolved
during implementation of the ERP system. The gaps
can be resolved by customizing the ERP system.
There are various approaches to customization in
ERP systems (Aslam et al., 2012). This paper
distinguishes between low-level and high-level
modification approaches. Low-level customization is
done using low level of abstraction tools such as
programming languages while high-level
customization uses high level of abstraction tools
such as interactive development methods and
workflows. Customization allows adding business
specific features to a standard software. Several
existing works investigate a choice between
customization alternatives (Parthasarathy and
Daneva, 2016) and implications of customization on
business value and operation of ERP systems (Zach
and Munkvold, 2012).
Customization often is time-consuming and
costly and poses various risks to the ERP
implementation (Kholeif et al., 2007). In order to
reduce the amount of customization, companies
might benefit from software updates released by
ERP vendors. The updates might contain
functionality or features requested by the companies.
Information about forthcoming updates is often
published as product development roadmaps by ERP
vendors.
Therefore, it is suggested that the fit-gap analysis
and selection of customization choices should be
synchronized with the vendor’s ERP development
roadmap. In general, the fit-gap analysis should be
viewed as a more strategically oriented activity
creating an ERP evolution strategy at the
organization. A gaps resolution strategy is proposed
as a part of this overall evolution strategy in this
paper. The gaps resolution strategy specifies
selection of ERP customization methods to deal with
84
Grabis, J.
Optimization of Gaps Resolution Strategy in Implementation of ERP Systems.
DOI: 10.5220/0007710000840092
In Proceedings of the 21st International Conference on Enterprise Information Systems (ICEIS 2019), pages 84-92
ISBN: 978-989-758-372-8
Copyright
c
2019 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
the gaps, timing of implementation of
customizations and possibilities to avoid
customization by adopting new features provided by
the ERP vendor. Depending on preferences of the
company implementing the ERP systems, the
strategy might favour customization, alignment of
development plans with the vendor’s roadmap or
redesign of business processes.
The objective of the paper is to develop a model
for optimization of the gaps resolution strategy. The
optimization model balances a trade-off between
customization effort and value, and specifically
takes into account the standard software evolution
roadmap provided by the ERP vendor. The model
allows conducting sensitivity analysis and evaluation
of different ERP implementation policies. The
specific research question of model analysis is: what
is the impact of company’s customization
preferences on the gaps resolution strategy.
Application of the model is demonstrated using an
example of customization of the lead qualification
process in a customer relationships management
module of the ERP system.
The rest of the paper is organized as follows.
Section 2 reviews background information and
related work on ERP systems and fit-gap analysis.
Section 3 defines the concept of gaps resolution
strategy. The optimization model is elaborated in
Section 4. Section 5 provides model analysis results
and the application example is explored in Section 6.
Section 7 concludes.
2 BACKGROUND
2.1 ERP Implementation Process
The ERP implementation process consists of project
planning, design and customization, implementation
and maintenance and continuous improvement
phases (Erazo et al., 2017). During the project
planning phase, key requirements are identified and
a suitable ERP system is selected. Detailed analysis
of the requirements and functionality of the ERP
system is performed in the design and customization
phase. If the enterprise chooses to adopt standard
features of the ERP system it might need to redesign
its business processes. If the enterprise opts for
retaining existing business processes, customization
of the ERP system is required. As the result
necessary changes at the enterprise and in the ERP
system are identified and the ERP system is
customized.
The important part of the implementation
process is interplay with software vendor. The
software vendor continuously evolves the software
and the recent move to software as a service mode of
software delivery implies that new features are
delivered continuously without the need for
upgrading from one version to another. The
envisioned changes are announced in advance in a
form of software development roadmap (Keizer,
2018). The development roadmap includes the
expected new features and their estimated release
dates. This way companies can take into account that
some of the currently missing features might be
delivered within a specified time period.
2.2 Fit-gap Analysis
The fit-gap analysis is a part of the planning and
design phases of the ERP implementation process.
Initially, it is performed for the high level
requirements to provide input for selection among
alternative ERP systems, and, once the ERP system
is selected, detailed fit-gap analysis is performed to
provide inputs for design of system’s
implementation.
The fit-gap analysis yields a set of fits and a set
of gaps. The gaps should be resolved for successful
implementation of the ERP systems. They can be
resolved either by customizing the ERP systems or
by adjusting the enterprise. This decision has major
implications for the organization and enterprise
adjustment leads to transformation of business
processes. These transformation decisions are
beyond the scope of this paper, which focuses solely
on software related aspects and customization
decisions. In relation to ERP evolution roadmap,
some features might be missing at the time of fit-gap
analysis, however, they might become available in
new releases of the system. If the enterprise is
willing to wait, then gaps can be resolved without
customization.
2.3 ERP Customization
ERP customization concerns modification of out-of-
the-box functionality of ERP systems using various
tools provided. It is performed in the customization
and implementation phases and is aimed at reducing
gaps between the required and provided
functionality. Aslam et al. (2012) summarize several
typologies of customizations in ERP systems. They
include configuration, bolt-ons, screen masks,
reporting, workflow development, interface
modification and package code modification.
Optimization of Gaps Resolution Strategy in Implementation of ERP Systems
85
Hustad et al. (2016) consider tailoring of reports,
interfaces, enhancements, forms, workflows and
portals. Luo and Strong (2004) developed a
framework relating technical customization and
process customization options.
There is no agreement on benefits of
customization (Aslam et al., 2012). Several authors
point out that customization is time consuming and
complicates system’s maintenance (Zach and
Munkvold, 2012). Research by Parthasarathy and
Sharma (2016) suggests that customization does not
yield expected benefits. Yet, companies have strong
desire for customization (Gool and Seymour, 2018),
and Holsapple et al. (2005) argue that customization
has a major importance on preserving value-adding
functions at companies using packaged applications.
Obviously, customization requires some
development effort and must have sufficient value or
utility for the enterprise to be considered for
implementation.
2.4 Related Work on Fit-gap Analysis
A number of fit gap analysis methods have been
developed. One group of the methods focus on
identification of gaps and another group of the
methods also consider selection of customization
choices to address the gaps.
Identification of gaps is analyzed by Wu et al.
(2007). Enterprise requirements are captured in goal,
activity and data models, which are compared with
the ERP systems to identify the differences. Yen et
al. (2011) identify misfits at the strategic level and
propose their classification framework, where the
misfits are categorized as enterprise, industry or
country specific.
Sarfaraz et al. (2012) proposed to use AHP to
evaluate technical customization choices vs process
customization choices with respect to degree of
customization. Parthasarathy and Daneva (2016)
develop a requirements prioritization framework and
a heuristic algorithm to find a justifiable degree of
customization. They consider introduction of new
standard features in future releases of the ERP
system as one of the evaluation criteria. Pajk and
Kovacic (2013) describe a detailed fit-gap analysis
process including high-level fit-gap analysis,
identification of gaps and fits, and gaps resolution.
Process adaptation, system adaption, third party
solution and workaround are identified as resolution
strategies. These and other fit-gap analysis methods
are also reviewed by Ancveire (2018).
The proposed model is an optimization model as
opposed to heuristic method used in literature and it
specifically takes into account dynamics of
introduction of new standard features by the ERP
vendor what is of particular relevance in the case of
ERP in the form of SaaS.
3 GAPS RESOLUTION
STRATEGY
The gaps resolution strategy defines selection of
customization options and their timing to reduce
gaps between the required functionality and the
functionality provided by the selected ERP system.
It takes into account vendor’s ERP development
roadmap and aims to optimize business value
achieved by satisfying requirements in the best
possible manner.
The conceptual model of the gaps resolution
strategy is shown in Figure 1. It is assumed that the
company has identified requirements towards the
ERP system. If the selected ERP package does not
satisfy some of the requirements, corresponding
gaps are identified. The strategy is driven by
company’s preferences concerning customization.
The vendor’s roadmap indicates timing of the
release of new features. The new features might
address some of the gaps though there is no
guarantee that they will be definitely delivered. The
gaps resolution strategy consists of customization
choices. The customization choice indicates when
and what gaps resolution approaches will be used.
The selection of the customization choice is made
per gap and one of the customization options is
selected. The customization options are specific to
particular ERP systems.
Figure 1: The conceptual model of the gaps resolution
strategy.
class Customization
Option
Gap
Requirement
Strategy
CustomizationChoice
Roadmap
Effort
Utility
Customization
preference
1
*
1
Used
0..*
1
Guide
1
1
1
1 1
1
Resolve
0..11..*
0..*
1
Drive
1
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Figure 2: The process of establishing the gaps resolution strategy.
Every customization choice has its utility and
associated implementation effort. The utility and
effort are specific to a combination of the gap and its
resolution option. The utility characterizes business
value achieved by making a specific customization
choice. The effort characterizes the implementation
effort. The utility does not necessarily out-weight
the effort.
The process of establishing the gaps resolution
strategy is illustrated in Figure 2. It is assumed that
requirements towards the ERP system have been
elicited and there is sufficient information about
functionality of the ERP system. The first task of the
process is identification of gaps. The gaps can be
resolved by employing appropriate customization
options. Utility and effort associated with every
customization option are evaluated per gap. The
paper does not investigate specific methods for
estimating utility and effort, and effort estimation by
planning poker (Qureshi 2012) is adopted for
illustrative purposes. The utility can be determined
using cost of delay criterion as described by
Leffingwell (2011). If a customization option is not
suitable for the gap then modification effort is set to
infinity. Simultaneously, the vendor’s roadmap is
analyzed and opportunities for using newly released
features to resolve the gaps are identified. There is a
utility associated with adopting the new features as
well.
The utility and effort estimates, and roadmap are
inputs to gaps resolution strategy optimization. The
optimizations steps are performed in an iterative
manner. The strategy is established for a finite
planning horizon and the optimization results are
selection of customization options and timing of
implementation of the changes bundled as releases.
The optimization is performed subject to
development resource constraints. Finally, the
strategy is implemented. Implementation
adjustments might be required because of changes in
the vendor’s roadmap as well as inaccuracies in
utility and effort estimation.
4 OPTIMIZATION MODEL
As a part of the process of establishing the gaps
resolution strategy, the optimization model is
formulated. The optimization model selects
customization choices to maximize the difference
between customization utility and effort. It takes into
account expected release of new features by the
ERP’s vendor and availability of development
resources needed for customization.
4.1 Notation
i gaps index
j customization options index
t time period index
TT planning horizon
i
G
gaps
j
O
implementation options
ijt
X
selected implementation option equals to 1 if
ith gap is resolved using jth option in tth period and
0 otherwise
i
release time period of new standard feature for
ith gap
Strategy optimization
Identify gaps
Analyze
vendor’s
roadmap
Evaluate
modification
utility
Estimate
modification
effort
Select
customization
options
Plan releases
Plan resource
consumption
Implement
the strategy
Optimization of Gaps Resolution Strategy in Implementation of ERP Systems
87
ij
E
implementation effort for gap i using option j
in points
ij
V
unadjusted variable implementation utility for
gap i using option j in points
*
ij
V
unadjusted fixed implementation utility for
gap i using option j in points
ij
U
variable implementation utility for gap i using
option j in points adjusted according to
customization preferences
*
ij
U
fixed implementation utility for gap i using
option j in points adjusted according to
customization preferences
t
R
resources available in period t in points
customization preference coefficient
4.2 Assumptions
The following assumptions are made in the
optimization model:
Gaps are independent;
Customizations are independent;
Tasks are small enough to be completed within
one period;
Customizations are rolled-out at the end of every
period if any;
Only one customization option can be selected
for a gap;
Effort, utility and resource capacity are measured
in points, which are appropriately scaled.
4.3 Objective
The objective function (Eq. 1) selects customization
choices that maximize customization gains expected
as the difference between customization utility and
effort. The utility is divided in two terms, namely,
variable and fixed returns. The fixed returns are
evaluated over the whole ERP life-cycle and are
accounted for regardless when the gap is resolved.
The variable returns are realized during the
strategy’s planning horizon starting with the period
when the gap is resolved.
*
1 1 1
1 1 1
()
I J TT
ij ij ijt
i j t
I J TT
ij ijt
i j t
Z TT t U U X
EX
(1)
4.4 Constraints
The optimization is performed subject to:
11
1,
J TT
ijt
jt
Xi



(2)
11
, 1,...,
IJ
ij ijt t
ij
E X R t TT



(3)
1
,,
i i t
t X i t

(4)
**
, , ,
ij ij ij ij
U V U V i j

(5)
The constraint (2) implies that every gap can be
resolved no more than just once (including using just
one customization option). The constraint (3)
represents limited availability of development
resources and total effort spent on customization
cannot exceed available resources in every period.
The constraint (4) states that the vendor’s released
features cannot be adopted before they are released.
The equation (5) adjusts the customization utility. If
the customization preference coefficient
is
increased the company has stronger incentives to
customize system. If the customization preference
coefficient is decreased the company prefers usage
of standard features and the gaps are resolved by
either changing business processes or waiting for
appropriate updates to be released by the vendor.
Thus, the equation represents company’s strategic
preference for customization or standardization.
5 MODEL ANALYSIS
Experimental studies are conducted with the model.
Their objective is to demonstrate impact of the
customization preferences on the gap resolution
strategy. A synthetic data set is used in the studies. It
is assumed that 20 gaps are identified and 5
customization options including adoption of newly
released standard features. Customization effort
varies from 0 (for standard features) to 13 points.
The utility is generated as a randomized multiple of
the effort and on average is by 20% larger than the
effort over the planning horizon. There are 12
periods within the planning horizon, and
development capacity for each period is 20 points.
The vendor releases new features after every four
periods and they are good for resolving 12 gaps
although some of the features become available
quite late in the planning horizon.
During the experimentation, the customization
preference coefficient
is varied from 0.25 to 2,
where the former value resembles company’s
preference to use standard features while the latter
value resembles company’s preference to customize.
The optimization is performed for ten different
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randomly generated sets of utility values. The
optimization results (Figure 3) show that
customization choices significantly depend on the
customization preference coefficient. If
=0.25 the
enterprise opts for changing business processes or
using standard features as they become available. If
customization utility is high almost all gaps are
resolved and there are few incentives to wait for
standard features to be delivered. That, however, is
also affected by availability of development
resources (in this case resource utilization is about
70% for
=2).
The optimization model clearly allows to
identify trade-offs between customization and
adoption of standard features depending on
customization preferences of the enterprise.
Figure 4 shows an example of the gap resolution
strategy. It shows timing of implementing
customizations and adoption of newly released
standard features. If the standard features are
adopted they are introduced immediately. For Gaps
5 and 12, the optimal approach is to customize the
systems not to wait till the new standard features are
released. The customizations are introduced at
different time periods because of resources
limitations. Gap 13 is not resolved because its
resolution utility is lower than the effort.
Figure 3: The gap resolution approach chosen depending
on the customization preference coefficient
Gap
14
Gap
13
Gap
12
Gap
11
Gap
10
Gap
9
Gap
8
Gap
7
Gap
6
Gap
5
Gap
4
Gap
3
Gap
2
Gap
1
1 2 3 4 5 6 7 8 9 10 11 12
5
None
2
Std.
feature
5
Std.
feature
5
Std.
feature
Std.
feature
4
3
Std.
feature
Std.
feature
Std.
feature
Figure 4: A fragment of the sample gap resolution strategy. The second column indicates the customization approach used,
green filling indicates periods the customization is implemented and used, light read indicates availability of new standard
features and dark red indicates usage of the new standard features.
Optimization of Gaps Resolution Strategy in Implementation of ERP Systems
89
Create Lead
Find
Duplicates
Merge Lead
Records
Make
Qualification
Call
Convert Lead
Create Folow
UpTask
Update Lead
Data
Close Lead
Dublicates
found
No dublicates
Create
opportunity
Not ready
Further action
required
No further
action
Figure 5: The lead qualification process.
6 EXAMPLE
Application of the model is demonstrated using an
example of implementing CRM module (the
functionality and available customization options are
inspired by Microsoft Dynamics 365). More
specifically, the lead qualification process (Monat
2011) is considered (Figure 5). In this process, a lead
represents a potential source of sales. Information
about lead is registered in the system. Initial
information might be incomplete and initial data
cleansing is required to identify duplicated records.
The leads are contacted by sales representatives to
gather additional data and to evaluate sales potential.
If potential customers respond positively they are
converted into opportunities. If initial contacts are
not successful, further activities are planed until the
lead is converted into an opportunity or dropped.
The number of leads can be substantial and there are
many opportunities for process automation.
The CRM application provides multiple
customization options categorized as data view, user
interface (UI) modification, custom report, different
types of workflows and add-ons. The data view
customization option provides simple improvements
for searching, filtering and performing other data
processing operations. The UI customization option
modifies the existing UI, for instance, to make data
input more efficient. Reports typically provide
analytical features. Basic processes provide process
execution guidance while workflows support task
automation and advanced process execution logics.
Add-ons are developed using low-level modification
techniques (i.e., custom code development) or
purchased from third-parties.
Table 1: Gaps identified for the lead qualification process
and available customization options.
Process tasks
Gap
Customization
options
Create Lead
G1: The data entry
is too time-
consuming due to
extra navigations
steps
Std. feature
Data view
UI
Basic process
Workflow
Find
Duplicates
G2: Provided data
are not
appropriately
tailored and a lot of
manual work
Data view
UI
Report
Basic process
Workflow
Add-on
Make
Qualification
Call
G3: The
conversation is not
scripted
Std. feature
Basic process
Workflow
Update Lead
data
G4: The update is
manual and
involves extra
navigation steps
UI
Basic process
Workflow
Create Follow
up Tasks
G5: Not all
information to
decide on follow up
tasks is available
Data view
UI
Report
Close Lead
G6: Closing is
manual
UI
Basic process
Workflow
Convert Lead
G7: Conversion is
manual
UI
Report
Basic process
Workflow
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It is assumed that several gaps have been
identified (Table 1). The company aims to make
process execution more efficient and considers
changes ranging from UI modification to
introduction of automated processing. The available
customization options are also listed (not all options
are available for every gap). For instance, the report
customization option is suitable for the Update lead
data task. Six customizations options are available
for gap G2 in the Find Duplicates task. The Data
view customization provides a set of filter
facilitating manual identification of duplicates. The
UI customization emphasis data fields needed for the
task. The report customization provides analytical
data need for the task. Process defines standard steps
to be performed to find duplicates and the workflow
automates some of these tasks. The Add-on provides
a classification algorithm for merging lead according
to a set of attributes.
The effort and utility of the customization
options is determined (Table 3). Generally, it is
assumed that user interface modifications are the
simplest and development (or procurement) of add-
ons require the most effort. Similarly, usage of more
advanced and lower level customization options
Table 2: Effort and utility per customization choice.
Gap
Customization Option
Effort
Utility
G1
Std. feature
Data view
UI
Basic process
Workflow
0
1
3
3
8
10
2
3,5
3,5
10
G2
Std. feature
Data view
UI
Report
Basic process
Workflow
Add-on
0
1
3
5
3
8
13
10
1,5
4
12
4
10
25
G3
Std. feature
Basic process
Workflow
0
3
13
3
3,2
20
G4
UI
Basic process
Workflow
5
3
5
3,3
3,2
6
G5
Data view
UI
Report
1
1
5
1
1
6
G6
UI
Basic process
Workflow
3
1
5
2
2
6
G7
UI
Report
Basic process
Workflow
3
3
1
8
3,5
4
2
10
potentially yields more benefits (i.e., higher utility).
The values provided are illustrative and their actual
values are determined from case to case.
The planning horizon is six periods and
resources are available to implement 15 points worth
of customization in each period. The vendor will
provide new features for the first three gaps in the
third period. Standard features are not expected for
other four gaps. The customization preference
coefficient
=0.25.
Table 3 shows the optimized gap resolution
strategy. Gaps 4 and 5 are left unresolved. The basic
process customization option is favoured instead of
the workflow customization option because it can be
implemented sooner (due to smaller effort) and
business benefits can be realized for the whole
planning horizon.
Table 3: The gap resolution strategy for the lead
qualification process.
Gap
Customization option
Time period
G1
Std. feature
3
G2
Add-on
1
G3
Std. feature
3
G6
Basic process
1
G7
Basic Process
1
The optimization is also performed without
accounting for the vendor’s roadmap. As the result,
the value of the objective function is by 58% smaller
than initially. That indicates that using the vendor’s
roadmap as an input one can find a better strategy.
The comparison was also made with a heuristic
method following the greedy principle. The heuristic
started with implementation of customization
choices with the largest difference between effort
and utility as long as resources are sufficient for the
period. The obtained value of the objective function
was by 87% smaller than the optimal.
7 CONCLUSION
The new optimization model for resolving gaps in
implementation of ERP systems has been elaborated.
It provides dynamic view gaps resolution planning
with respect to resource availability and vendor’s
software evolution roadmap. The model can be used
to evaluate various ERP implementation policies, for
instance, impact of company’s preferences for
customization or retaining standard features. This
analysis is important because there is no consensus
Optimization of Gaps Resolution Strategy in Implementation of ERP Systems
91
on business value of ERP customization and
companies have different needs and preferences.
The optimization model can be extended in
various ways. Currently, it assumes that
maintenance considerations are captured using the
utility measure though more explicit treatment of
maintenance could be provided. The model also
does not consider relationships among gaps and
possibilities to used multiple customization options
for a single gap.
Company and vendor relationships also could be
explored further. Unfortunately, vendors change
their roadmaps frequently and this uncertainty also
should be represented in the model. Additionally,
vendors charge support fees, which include delivery
of new features. The model could be used to
evaluate whether 1) these fees are justifiable and 2)
features are delivered soon enough or the company
is better off with implementing changes on its own.
ACKNOWLEDGEMENTS
This study was funded in parts by European
Regional Development Fund (ERDF), Measure
1.1.1.5 “Support for RTU international cooperation
projects in research and innovation”. Project No.
1.1.1.5/18/I/008.
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