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

 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

ICEIS 2007 - International Conference on Enterprise Information Systems

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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

420

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