Business Accent

Forging system changes through ERP

Implementing an ERP application is the best way to streamline existing systems in an organisation

Ipshita Basu Guha

Most of the time we find ourselves complaining about the ‘system.’ “There is a problem in the system” or “no one is working in a systematic manner” or “the system is an absolute failure.” There are lot of wasteful activities and processes around us. Let us step back and ponder for a while—Is the system really a failure? Who designs these systems? How can we rectify a faulty system? What are systems? A system can be defined as a group of independent but interrelated elements (man, machine, money, methods) striving to achieve a particular goal or objective through mutual interaction and feedback mechanism. All systems absorb inputs, process them and then generate output.

The word system originates from the Greek systema, which is derived from ‘syn’ meaning ‘together’ and ‘histemi’ meaning ‘to set.’

Role of systems

Systems play an important role in the growth and development of any organisation. It is crucial for an organisation to have well laid and documented systems to function efficiently. They are important for the organisations’ employees, suppliers, customers and all other stakeholders. If there is ambiguity in the systems and processes then lot of time and resources are wasted to attain a particular objective. The general level of motivation of all stakeholders becomes positive if they know what they are expected to do, how and when. A system-driven organisation requires less supervision of the top brass in its day to day functioning. This enables the company to spend more time in strategy formulation and planning for growth and expansion. This is what makes an organisation mature and self-sustaining. In the absence of further growth plans most organisations get acquired or their existence gets diminished.

“Systems thinking” helps each member of the organisation to understand how it functions as a whole. It helps people understand how their activities (or inactivity) affect that of the others. Systems define the levels of hierarchy in an organisation, the interplay between them, and the chains of communication and information flow which are otherwise not known. They also define the boundary condition in which they function. The feedback mechanism which is in-built in systems gives us an idea of whether the system is functioning as desired or otherwise.

Stages of growth

Organisations go through various stages of growth since inception. Generally entrepreneurs start a business with limited capital and manpower. Their sole aim is to generate revenue and sustain themselves. The owner directly supervises all the activities. Slowly the organisation moves to a stage of functional segregation (accounts, purchase activities separate) and indirect supervision. There is not much stress on building proper systems to function efficiently. Subsequently it grows larger and transforms into a professionally managed multi-unit business where the individual owner’s role diminishes and formal systems and structure take over. The organisation becomes mature and grows both in terms of sale as well as employees. In order to sustain growth and viability and enable management of large number of employees, an organisation requires systems which make the day to day processes function smoothly and a feedback control system to ensure that any kind of deviation (positive or negative) is identified and acted upon. The managerial style changes from authoritative to decentralised, team-bound, participative and collaborative.

It is usually observed that systems in an organisation are deeply influenced by the culture of the promoters. These systems may or may not be effective in the progress of the organisation. The necessity for creating, amending, modifying or discontinuing certain systems and processes arises over a period of time.

Systems and ERP

How do you streamline your existing systems and start building consensus among your employees to modify the existing systems or implement new ones? The best way is to implement an ERP application. Does that mean that ERP is the remedy to all malaise? No. But how do you know which is the best system? Which system will work effectively? What are your competitors or similar industry players doing?

Companies have their own small isolated packages and applications (internally or locally developed) to automate statutory functions like purchase order preparation, book-keeping, ledger maintenance and balance sheet preparation. These are developed at different periods of time using different software based on individual need. Generally people continue using these systems without taking some time out to step back and analyse whether there is any other (better) way of doing things. It is difficult to disturb this tranquil. The change manager has to have something strong and proven to modify the systems. What better than a tested ERP application?

ERP applications are developed by the vendors based on best practices of the industry(s). They keep modifying their product at regular intervals and are open to changes in the environment in which they function. It does not mean that processes in an ERP application are more correct and efficient than the existing ones.

The benefit of an ERP application is that it binds all the functions together into a synergistic whole. Implementation of ERP forces all functions to work together in a predetermined pattern. Each and every function and its related personnel have to work in harmony to keep the overall activities running like a well-oiled machine. A good ERP application prescribes the method in which certain processes should ‘ideally’ run. It might be drastic and revolutionary for the employees at the onset and there could be huge resistance and obstacles. But over a period of time most people come around and start working together. Rogers’ model of Innovation Adoption Curve classifies adopters of innovation into categories like— Innovators, Early Adopters, Early Majority, Late Majority and Laggards. Change managers should identify the Innovators and Early Adopters and convert them with the new idea of systems.

Let us try to understand this with a simple scenario of a common order to payment cycle. In the absence of an ERP application, product X may be purchased from a vendor and the accounts function could be verbally communicated that payment has to be made. There isn’t any requisition by the function which wants to procure X, any proof of quotation comparison or purchase order with clear terms and conditions which is sent to the party or even a proof of goods receipt. There is no accountability at any stage of the procurement process. This system works without hassles in case of small proprietorship or partnership firms. What about a mid- to large-sized organisation? What about compliance with standards like ISO, Basel, SOX (Sarbanes Oxley) and so on? In today’s world of corporate governance and corporate social responsibility, there is a strong need for good quality documentation and procedure in order to function efficiently and to build a clean and transparent image. It is essential for an organisation to start building strong systems when it is young because when it becomes bigger and famous it carries a history behind it.

Initiating ERP implementation to usher in systems modification and forging them in the organisation’s culture is akin to renovation and remodelling of a house which has been inhabited for couple of years. Over the years we accumulate lot of unnecessary clutter but rarely find the time or the urge to figure out what should be retained and expunged. Sometimes we have certain problems cropping up, say a stock-out situation or missed deadline for an export order and all that we do is complain about the system, the problems occurring due to it and then sit back. ISO compliance says that when a non-conformance is raised then the root cause should be identified and analysed. A corrective measure should be taken to ensure future compliance. An ERP project is the time when we really delve into our minds and analyse how we are conducting our day-to-day activities, what are their shortcomings and how they could be made meaningful and result-oriented. Many activities which do not generate any value can be cut off. The value chain model of Michael Porter helps analyse specific activities through which firms can create value and competitive advantage. ERP helps in managing cost drivers like economies of scale, capacity utilisation, firm’s policy of cost, geographical location, and institutional factors like taxes and linkages between activities of one or more business units.

Good option

There is no rule which states or claims that implementing ERP is the best solution for enhancing the systems in an organisation but it is definitely one of the desired options. It serves the dual purpose of automation and system creation or re-engineering. If we leave 80 percent of the ERP application in its native state then it can teach us how to function in a better manner. There are skeptics who might say that so many ERP implementations fail but then each has a cause for its failure. The reasons are more human than technical. It is essential for us to learn as an individual and as an organisation why a particular system has been built in ERP applications and how it is better than what we follow currently. Systems thinking and system oriented functioning is the order of the day for all types of organisations.

The author works with a pharma company as Business Systems Analyst. The views expressed here are her own and not necessarily those of her employer. She may be reached at ipbasu@rediffmail.com