Enterprise Resource Planning in Business

Introduction

Over the last decade, Enterprise resources planning (ERP) systems have emerged as an essential tool so as to obtain the competitive advantage for most businesses. ERP systems are defined as management information systems (MIS) that integrate primary business applications, including all areas and levels of an organization. Typically, ERP systems consist of applications for accounting and controlling, quality management, production and materials management, sales and distribution, project management and human resources. (Loadstone, 2003). MAS is a system of measuring and providing operational and financial information. ERPS and MAS are interrelated and have a close relationship. As “ERP is at its essence a data management tool”(Schuster & Brock, 2004, p.2) therefore, it can be said that ERP is a tool of MAS in order to give businesses a competitive advantage.

The cost and time are very important issues for an organization to consider when implementing an ERP system. (Granlund and Malmi, 2002, p.304). However, a proper implementation of the system may provide many benefits, depending on the organization integrating the system with its own business processes.

An ERP system has many advantages in helping organizational management accounting systems. It integrates all parts of an organization’s management processes and each application within an ERP system shares a common set of data and files that is stored in a central database. (Olson, 2004, p.4) Consequently, it may increase the competence and accuracy of the data so as to provide better financial performance and enhance competitive position. (Hayes, Hunton and Reck, 2001). In addition, an ERP system can increase the organization’s overall efficiency and effectiveness since all the parts within the ERP system are connected and integrated with each other. (Loadstone, 2003). Subsequently, people may have faster access to the information so that it enhances facilitating decision-making.

It is clearly indicated that it has to take a lot of efforts and resources on ERP systems so as to gain competitive advantage. When the ERP systems are implemented properly, the benefits always outweigh the deficiencies. This essay is to examine the effects of ERP systems on an organization, that is, to find out whether installing ERP systems adds value to an organization for centralizing corporate data and facilitating decision making. It also discusses whether the organization being designed around the MAS or the MAS being tailored to the internal and external environment of the organization.

The Impact of ERPS on the Entire Organization

Due to the technological advances, an organization is no longer constrained by geographical or time boundaries, progressively, organizations are becoming in favor of adopting a more resource-based view of the firm. Consequently, as Chapman and Chua (2003, p.78) identifies, it is increasingly important that an organization develops an ‘integrated and coordinated’ approach in relation to knowledge, technology and relationship management, which is called Enterprise Resources Planning System (ERPS). Over recent years, organizations have become increasingly more target driven, which has witnessed the emergence of a correlation with an increasing reliance upon the ERPS, such as SAP, Oracle and PeopleSoft, which have a huge dependency upon information technology.

One of the main advantages of ERP systems is to centralize corporate data. It integrates all parts of an organization’s management processes. The integrated data and information flows are related to the gain of competitive advantages. As Berretta (2001, cited in Granlund et al., 2002, p.305) indicates it, “ERPS support the management of organizational interdependencies by enabling cross-functional information flows, language sharing and cognitive integration among functional units”. Consequently, it may increase the organization’s overall efficiency and effectiveness.

Furthermore, an ERP system may enable quick response to changes in business operations and environment and make information access and management throughout the company much easier and faster. As a result, it can improve the time and resources for decision-making. An ERP system is such an interactive information system that rely on integrated user-friendly hardware and software designed to assist mangers make decisions related to the efficient and profitable running of the business. (O’Brien, 1997, P31).

The major impact of ERP systems on the organization is that they cause the organizational structure change. An ERP system requires the re-engineering of an organization’s process and culture. A further support from Walsham (1993, cited in Caglio, 2003, p.128) who states that “a new ERP system may contribute to the redefinition of how organization actors communicate, what behaviors to sanction or reward and how people enact power, possibly being drawn upon in the day-to-day operations by all organizational members in order to make sense of and cope with organizational activity”. Thus, it can be said that introducing an ERP system is to reproduce a new organizational structure.

Another contrasting view can be seen as on the issues of costs and time consuming. An ERP system requires the re-engineering of an organization’s process and culture. The costs of setting up an ERP system are so high that some small businesses may not consider installing it. Moreover, since an ERP system can take a fairly long time to implement into an organization, it may slow down the productivity. Many written work (Granlund and Malmi, 2002; Harwood, 2003; Olson, 2004) have identified these issues.

In some cases, the ERP system cannot functionally fit the business processes within the organization. As Olson (2004, p.3) notes, “the business world is dynamic, and a rigid approach has drawbacks”. In other words, ERPS are not best for every particular firm. In some cases, a company may find out the software does not support the important business processes, even though it has spend multimillion dollars to implement the ERP projects. As a result of this, it can be said that it is difficult to identify whether the ways of a company doing its business will be suitable within a standard ERP project.

Impact of ERP Systems on Management Accounting

Basically, ERP systems are bound up with organizational processes of accounting. (Christopher, 2005, p.685). ERP systems have significant effects on changing the way accounting and business exists within an organization. (Sutton, 1999, p.5, cited in Granlund and Malmi, 2002, p.300). That is, implementing these systems in an organization usually involves changing business processes and thus changing the way people do their jobs, especially accountants. ERP systems co-ordinate and integrate activities all around the organization so that it has more control of its operation. Less confusion and error arises as a consequence of creating a common set of data shared by every process.

The Impact of ERPS on Management Accountants’ Work

ERP systems replace the role of the traditional accountants within the organization and perform many parts of accountants’ daily routines. (Caglio, 2003, p.124). Accountants tend to expand their roles and devote their effort to strategic decision-making, business management and information technology initiatives. Granlund and Malmi (2002, p.311) claim, “The role of accountants has expanded towards more active, business-oriented roles”. As a result of the implementation of ERP systems, accountants are more likely to “broaden their range of activities and practices” and “improve their positions and get access to other professional fields”. (Caglio, 2003, p.128). Thus, it is critical that accountants understand these systems because they will be members of the teams that will install and operate them in their organizations.

The Impact of ERPS on Management Accounting and Control

An ERP system is a kind of software that needs to communicate across all parts of the business. (Dechow & Mouritsen, 2005, p.691). Usually, many companies with un-integrated accounting systems do not know how much it actually to produce a unit of product. However, with an ERP system, costs throughout the company can be recorded in the enterprise-wide database as they occur. Not only will this simplify the process of adjusting accounts, but also it means that the management can obtain the accurate, up-to-date information any time. (Brady, Monk & Wagner, 2001, p.110). This can actually minimize the amount of human participation and paperwork.

Conclusion

The ERP market is set to produce and expand in many directions; many core installations of ERP applications are digging in to make grounds. One area is receiving improved business intelligence out of the systems all the way through decision support and knowledge management and the other is Web-based procurement, where users can order supplies on the internet. Businesses would be wise to approach new markets with a discerning eye, as the number of questions raised as a result of hypotheses may not provide very encouraging picture.

The established fact is that it has a definite effect on framing the business strategies, but the exploration work done during the study may provide the answer that its cost effectiveness will restrict it to big companies alone. The integration of technology in up dating the software of ERP systems had deep impact on the business strategy. The Information Technology is revolutionizing the means, in which we exist and labor. It is altering all aspects of our life and way of life. The digital revolution has given mankind the capability to treat information with mathematical accuracy, to send out it at very high precision and to control it at will. These capabilities are bringing into being a whole world within and around the physical world. The amount of calculation authority that is obtainable to mankind is rising at an exponential rate. The computers and chips are becoming integral parts of our lives. The gadgets of modern technology are set to change all the strategies.

The existing trends warrant doing some thing extra to survive, thrive and beat the competition in today’s cruelly competitive world one had to manage the future. Managing the future means managing the information. In order to manage the information, in order to bring high quality information to the decision makers at the right time, in order to automate the process of data collection, collation and refinement, organizations have to make Information Technology an ally and should tie together its full prospective and employ it in the best mode and technique. The organizations are turning to some sort of Enterprise Resource Planning (ERP) package as a solution to their information management problems.

References

Brady, J., Monk, E. & Wagner, B. (2001), Concepts in Enterprise Resource Planning, Course Technology Thomson Learning: Canada.

Caglio, A. (2003), ‘Enterprise Resource Planning systems and accountants: towards hybridization?’ European Accounting Review 12 (2003), issue1, pp.123-154.

Chapman, C. & Chua, W. (2003), ‘Technology-driven integration, automation and standardization of business processes: implications for accounting’, Management accounting in the digital economy, Oxford University Press: Oxford.

Christopher S. C., (2005), ‘Not because they are New: Developing the Contribution of Enterprise Resource Planning Systems to Management Control Research’, Accounting, Organization and Society, volume 30, Issues 7-8, pp. 685-689.

Dechow, N. & Mouritsen, J.,(2005), ‘Enterprise resource planning systems, management control and the quest for integration’, Accounting, Organizations and Society, Volume 30, Issues 7-8, pp. 692-733.

Granlund M. & Malmi, T. (2002), ‘Moderate Impact of ERPS on management accounting: A lag or permanent outcome?’ Management Accounting Research, 13, pp.299-321.

Hayes, J. Hunton and J. Reck (2001), ‘Market Reaction to ERP Implantation announcements’, Journal of Information System.

Harwood, S. (2003), ERP, the Implementation Cycle. Butterworth-Heinemann: Britain.

O’Brien, J., (1997), Introduction to information, IRWIN: America.

Olson, L.D. (2004). Managerial Issues of Enterprise Resources Planning Systems. 1st Edition, McGraw Hill: New York.

Schuster, E.W. & Brock, D.L. (2004). ‘Creating an Intelligent Infrastructure for ERP systems: The role of RFID technology’, Journal of Business Logistics, Volume 21, Issue 1.