[020-0444]
Adopting ERP with Informality in order to Foster Both Efficiency and Flexibility Operations
Yucan Wang
Operations & Information Management Group, Aston Business School, Aston
University, B4 7ET, Birmingham, West Midlands, United Kingdom
Tel: +44 07515734286, email:
Andrew Greasley
Operations & Information Management Group, Aston Business School, Aston
University, B4 7ET, Birmingham, West Midlands, United Kingdom
Emmanuel Thanassoulis
Operations & Information Management Group, Aston Business School, Aston
University, B4 7ET, Birmingham, West Midlands, United Kingdom
POMS 22nd Annual Conference
Reno, Nevada, U.S.A.
April 29 to May 2, 2011
Stream: Technology management
ABSTRACT
This paper discusses whether efficiency and flexibility can be improved simultaneously when adopting ERP based systems. ERP systems are known for their ability to achieve efficient business performance by enabling standardized business process design, but at a cost of a possible loss of flexibility in operations. Efficiency and flexibility may seem incompatible in that they are different business objectives and may exist in different organizational environments. However, based on case study research, this paper investigates the objectives and characteristics of ERP and informality and how they can lead to improvements in both operations objectives of efficiency and flexibility.
Keywords:
Enterprise Resource planning, efficiency,flexibility, informality, social networks
1. INTRODUCTION
Enterprise resource planning (ERP)has become a popular IT system that improves efficiency by integrating business processes and enables better data sharing from a centralized platform[20][13].In the practical world, ERP is known for implementation failures, especially in new markets, such as SMEs, or firms in the developing countries[25] [11]. In response to this ERP suppliers (for example Oracle and SAP) sell tailored modules for small firms [1] and some small system vendors provides customized in-house ERP implementation for firms in the developing countries in order to satisfy their special requirement[27].However,ERP is derived from manufacturing firms’ material requirement planning (MRP)systemsand was originally designed for large organizations. This application facilitates the standardization of processes and satisfies the needs for management control in large organisations by concentrating all information into one system[5].Generally it can be seen that ERP achieves an increased efficiency in business performance, but with a possible of loss of flexibility due to conforming to a standardized business process design[13].However, in an effort to maintain competitive advantage, there has been an increasing need for firms to maintain flexibilityso that they can quickly response to changes in the market. [12]
One aspect of organizational behaviour that is seen as important inachieving flexibility is the concept of informality. Mullins (2007) [8] definesinformality as a feature of organizationsthat can break exiting norms and behavioursand informal procedures exist without formal documentation. Informality can also ‘jumpstart’ stalled initiatives within social networks.SMEs typicallyhave a mass of informal business processes. Entrepreneurs play a vital role in supporting informality with experience and tactical knowledge [12].However current ERP based systems might not be able to retrieve informal business processes without formal documentation in the existing standardized system. Moreover, according to Slack et al., (2010) [16], some of the ‘inappropriate’ informal processes will lead to non-efficiency such as high costs and long delays.However, there is a need for a system that can eliminate the waste owing to informality. ERP seems to be such a solution to improve the efficiency of these processes, but there is a challenge to not lose the benefits of flexibility as well.
Thus the paper will explore what are the contradictions and complementarities between ERP and organizational informality in related to efficiency and flexibility, and why and how adopting ERP with informality could improveboth of these objectives.
The remainder of paper is structured as follows. Section 2 critically reviews the theories of ERP, informality, how they are related with efficient and flexible operations, and the theoretical debate on efficiency and flexibility. Then section 3 provides the research approach and process. In section 4, we outline the case description and how adopting ERP along with informal business activities can improve efficiency and flexibility complementarily. Section 5 interprets the findings from a case studyand provides a summarized matrix. Section 6 contains the discussion, conclusion, and implications as well as further studies.
2.Literature review: complementary and contradictory ofADOPTION OF ERP SYSTEMSWITH INFORMALITY
2.1 Contradictions
Traditionally there is a view that efficiency and flexibility might be contradictory. Firstly, ERP and informality focus on different issues. ERP is focused on efficiency of business performance with standardized business process design. [13] According to Greasley (2009), efficiency is related to the use of resource and actual output. [1] ERP achieves efficient performance by providing optimal resource planning and streamlined business processes. [2] In contrast, informality highlights flexibility and connects people in a loosely structured organization[8]. The flexibility requires firms to be quick to adapt to market changes and to cope with emergencies, such as capacity shortfalls, equipment breakdown or component shortage, etc [1]. In additional, the business achievements are pre-defined in an ERP based system,[22] while informality depends on unplanned interactions in the social network[8].
Furthermore, the organizational decision-making methods are different. ERP provides a formal method to support top managements through systemic analysis, which could integrate with business intelligence tools [22].The decision-making of informal organization is related to experience and intuitions, and the engagement of front-line employees [10]. Moreover, there are distinctions to be drawn between communication systems. ERP achieves effective communication with information and knowledge sharing and business collaboration based on the integrated information system[16]. Knowledge here is explicated such that it could be codified into the system [21]. However, informality provides decentralized method to communicate called the “grapevine”. It can rapidly transmit information in the social network and skip the entire organizational chart. The knowledge and information in the informal network is tactical, and is hard to retrieve, because it is embedded in the human’s mind and diffuse in the social communities [6].
What is more, from a traditional perspective, efficiency and flexibility strategies fit different organizational environments [24][7][18][14].In Morand (1995)’s research [3], informality entails with a loosely structured, spontaneous and social interaction between organic organizations, while Al-Mashari [13] ERP based systems is related to standardized processes and formal interaction that is in a tighter, deliberate, and impersonal mode of bureaucratic organization.
2.2Complementarity
Although currently studies do not directly discuss complementarity between ERP based systems and informality, they allude to the possibility of achieving mutual benefits between informality and ERP based systems. A leagile strategy is a typical example to integrate flexibility and efficiency in supply chain management. Based on this, ERP and informality might be able to integrate together to achieve complementary benefits.
First of all, ERP also supports flexibility, while informality contributes to efficiency management. As an enterprise system, ERP is able to integrate all significant resource planning systems in an organization. It is able to provide optimal resource scheduling and better business process management. [16] The optimal resource scheduling benefits in speeding up the supply chain response and to flexibly adjust production and services to satisfy customer demand. [2]Moreover, it is able to redesign business processes to streamline and speed up operation procedures. Better process management will eliminate the waste of inappropriate flexible procedures. [16]Informality could also improve efficiency. It could improve management resource through frontline experts’ experience and intuition. Also informality is able to reduce costs and simplify procedures by cutting through complex and inappropriate formal procedures, and benefits to increase the outcomes through improve market satisfaction. [8]
Although ERP and informality use different communication methods, both of them could improve information and knowledge sharing, and build organizational collaboration. ERP contributes to building cooperation based on the integrated communication platform and cross-functional support in the organization[2].What is more, an informal network could establish network collaboration beyond technology [23]. Informal organization is through lateral communication in the social network. [8] The communication combines social interactions to build trust between participants in the network. [19] Consequently, trust could enhance the cohesion of organizational work. Trust based social network is able to reinforce technical based network [26].Therefore an informal network could improve the integration capability of ERP through psychological networks.
Finally, ERP and informality could provide complementary benefits to organizational management On the one hand, ERP enables organizational transformation to form the new institutional arrangement with organizational dynamics [15]. The new organization will place emphasis on decentralized management to improve competitiveness, because ERP provide a central platform to collect different groups of interests including both internal managements, staffs, customers and suppliers. Informality needs an open organization environment that motivates frontline employeesto join in the business interactions to support flexibility within the social networks [9]. Therefore ERP could enhance informality through better cooperate people to work together on the central platform. On the other hand, informality contains never-ending social interactions, learning and knowledge sharing [4]. It benefits to ERP based system to make improvements continuously. The resistance of change management will be reduced, since frontline employees’ informal interactions could be involved in. Consequently, it will benefit ERP in aligning with business practices. Chan (2002) [2]6 also pointed out that informality contribute to improve IS excellence with flexibility and fluidity. He introduced “socio-technical” system, which comprises various informal structures, connections and procedures with a formal technical system. For example, people could get their work done in social networks, communities of practice, cross-department relationships, unofficial agreed-on processes, and flexible divisions of work. Informal activities are not strict in predetermining responsibilities and procedures. But they could flexible in adapting internal and external organization changes. Moreover, informality could multiply, overlap and reinforce links through social network [26]. Therefore informality could strength the capability of ERP to integrate and align with high-performances in both of internal and external units over time.
To conclude, ERP and informality have tangible differences, by which ERP focuses on efficiency while informality highlights on flexibility. The two strategies are a fit to different organizational environments. However, there are mutual benefits between ERP and informality. ERP as an integrated enterprise system may provide optimal resource planning to flexibly respond to supply chain and process management, to mitigate waste due to inappropriate informal activities, while informality supports the ERP integration capability in order to provide multiple links between units in the social network, and reinforce the links through psychological trust. Moreover, informality may assist ERP implementation in dynamic environment. Informal interactions, learning, and knowledge sharing will benefits ERP in improving its’ business process design continuously. Table 2summarizes the contradictions and complementarities in detail.
Contradiction / ComplementarityERP / Efficiency focus: maximizing resource capacity utilization and actual output
Standardized business process design
Predefined business procedures
Decision-making based on systemic analysis
Integrated information system: effective communication and collaboration
Stable environment / Also support for flexibility
Optimal scheduling benefits for speed, flexibly adjust to customer service based on demand and rapid response in the supply chain
Better process management to eliminate waste
Integrated platform enables lateral communication
Form new institutional arrangement: increase employees’ utilization rates
Informality / Flexibility focus: quickly adapt to market changes
Informal and loosely structured activities
Unplanned business interactions
Decision-making based on intuition
Decentralized system through grapevine
Open environment / Also support for efficiency
Effective resource management through informal procedures based on frontline experts’ experience
Reduce costs by simplifying business processes
Increase outcomes by improving market stratification
Trust based communication and social network
Make continuous improvement of ERP
Improve ERP integration and alignment
Table 1. Contradictions and complementarity between ERP and informality implicated from existing literatures
3. RESEARCH APPROCH
The research approach employs an in-depth case study to generate a theoretical model of how to adopt ERP with informality to achieve both efficient and flexible operations. More specially, first of all,semi-structured interviews are conducted ofmanagers and key staff withinbusiness activities. These focus on understanding how informal activities work in terms of flexibility. Then data is gathered from business documentations, ERP systems implementation blueprints, and transcripts of meetings.
4. CASE DESCRIPTION
Jinsheng has a number of furniture shopping centresin China. It has established a one-stop “Home furnishing” shopping format to provide a range of merchandise, including building materials, furniture, fixtures and fitting, bedroom and bathroom products and electrical appliances. Rather than directly selling goods for customers, Jinsheng provides trading platforms and relevant services for tenants and manufacturers.
4.1As-is Model (Figure 1)
Figure 1 shows current business activities in the company. HQ controls and manages branches’ activities. However, branches have some informal activities with green lines. Some of them are essential for the organization to maintain business relationships and flexibility to deal with market demand.
4.2To-be Model (Figure 2)
The company here has a customized ERP system combined with an OA (office assistant) system to examine and approve these informal activities through experts and top managers. The time for the experts to examine and approve procedures is restricted to one day in order to maintain high-speed services related to flexibility. The urgent issues will be approved by an Operations Director by phone message if the relevant costs are no more 5000 RMB.If the costs range from 5000 to 10000 RMB it will be approved by the Vice-President. Otherwise all these issues needs to direct report to the CEO. If they agree informal activities can operated, staffs will use OA system to transfer data of informal activities into ERP system.
Figure 1. “To-be” model: Jinsheng current business process
Figure 2. As-is model: ERP adoption with informality
5. CASE ANALYSIS
This paper focuses on why and how adopting ERP based systems with informality could enhance efficient and flexible operations. This section is structured on this basis to discuss: (1) objectives and characteristics of ERP and informality, (2) complementary impacts on ERP and informality in improving both operation objectives
5.1 The objectives and characteristics of ERP and informality
Objectives and characteristics of ERP / Objectives and characteristics of informalityImprove information sharing to enhance efficiency
Reduce the waste through systemic redesign/streamline business process and filter inappropriate business activities
Reduce data conflicts, so establish a common IT infrastructure
Enhance business performance measure with visible data flow
Assist to decision-making with systemic intelligent tools
Improve cooperation in the integrated environment / Maintain the flexibility with engagement of frontline experienced employees
Make continuous improvements for ERP based system
Add additional channel for communication
Improve internal satisfaction withtrusted based informal groups
Build long term strategic relationships with external partners
Establish social committee with open and harmonious culture
Table 2 objectives and characteristics of ERP and informality
Table 2 summarises the objectives and characteristics of ERP and informality in the case study organisation. It can be seen that the major reason the company uses an ERP based system is to achieve efficient operationsthrough effective management of data and information on an integrated platform andto provide a systemic analysisof the informal activities to eliminate the waste and measure business performance in the branch shops. For example, the data conflicts between financeand marketingoccur in the organization due to different data structures and calculation standards.In order to deal with this problem senior management set up a group of people to collect daily incomes and validate the mass of reports. However, there is some information related to informal activities which is invisible and is hard to collect and verify.The CEO always complains “ I don’t know how much I earn today.” In additional, there are huge amounts of reports for top managers to decrease the rental fees or adjust the payment methods from every year to every quarter in the new contract, and to request for more social fees with certain tenants. Thus the huge amount of data conflicts and expenditure motivates management to decide to implement enterprise management systems to improve cooperation between departments, to share information, and provide systemic management supports.
On the other hand, the informality aims to maintain the flexibility in the organization. The frontline business experts can be flexible when implementing a wide range of services and can quickly adjust rental fees and services to market changes. Then, informal groups are formedspontaneously. They may consist of experienced frontline experts, critical business actors in Jinsheng, and key business external partners, such as leaders in the industry committee, groups of customers, high reputation furniture retailers. The leaders in the groups are not formally defined by Jinsheng, but it is related to personality and prestige. Thus internal employees’ stratification will be improved. The group leaders may have social interactions to establish long term relationships with keytenants and customers. Consequently, the social committee is trusted based in an open and harmonious environment. Jinsheng returns more from these informal networks. More high reputation furniture companies are willing to sign longer rental contract with Jinsheng. Jinsheng’s reputation will increase along with these famous furniture companies. Even more, some manufacturers are willing to set up their direct-sale branches, which are able to pay relative stable rental fees and expand market along with Jinsheng. If there is any change in the furniture market, the industry leaders will share their information immediately, and assist to Jinsheng to overcome the changes. For example, they will contribute their goods and provide huge reductionin price to assist Jinsheng to deal with commercial war. That is to say, the informality and flexible performances are needed to maintain in the organization. It is not feasible to provide standardized business rules for the organization.