Question

Explain why and how ERP systems have changed the approach to ICT planning. Critically discuss why ERP systems change the role of managers in the planning and control of ICT in the organisation.

Answer 1

Enterprise Resource Planning (ERP) – a term coined by the Gartner Group in the early 1990’s – is an enterprisewide commercial software system based on best business practice. It is modular in structure, as each module automates the processes within a certain function of a business; and enables process and information integration across all functional domains of an organization. It is defined as the customisable commercial software system, embedding best business practices, built on a modular structure which automate and integrate the key business & management process and information using a common database, providing real time seamless integration of the information flow.

ERP brings standardization across a variety of organizational functions, facilitating better communication among departments. The ERP suite supports critical business processes in many business operation areas (Cotteleer and Bendoly 2006). SAP, Oracle, Baan and PeopleSoft are some of the best-known ERP systems – although there is a continual process of mergers and acquisitions among ERP vendors. Organisations investing in ERP endeavour to accomplish a number of objectives. Firstly, they want to benefit from ERP’s cross-functional integration and embedded best-practice capabilities (Robey 2002), modular structure; and its flexible and scalable architecture. As Shang and Seddon (2000) point out, they then seek to achieve a variety of benefits – operational: reduced operating costs, accurate demand forecasts; managerial: improved decision making and better resource management; strategic: greater support for business alliances, building business innovations and cost leadership; IT infrastructure: building business flexibility; reducing ICT costs; and organizational benefits: supporting organizational change, facilitating business learning and empowerment (Basoglu et al. 2007). Lastly, to replace fragmented/multiple, difficult, costly to use and costly to maintain existing legacy systems – a situation known as “a maintenance nightmare” (Robey 2002). Ironically, this transition is neither easy nor agile.

The performance impacts of ICT systems have been widely discussed using a variety of theories, methodologies, approaches and attributes. A review of the relevant literature suggests that a number of studies have considered pre vs. post implementation data to analyse the impact of ERP implementations in terms of both tangible and intangible measures. Among the various key issues discussed in the literature, the assessment of the performance impacts of ERP from financial perspectives was one of the first. Poston and Grabski’s (2001) longitudinal study of pre vs. post implementation provided mixed results. It found no significant improvements, either in residual income or in decreased selling, general and administrative revenue expenses, in the 1st and 2nd years of ERP implementation. However, the study revealed a significant decrease in the ratio of employees to revenue in all 3 years, plus a significant improvement in the ratio of cost of goods sold to revenue in the 3rd post-implementation year. Hunton et al. (2003) suggested a different approach, arguing that a decline in financial performance of nonadopters relative to adopters should be anticipated and studied, as adopting firms may not necessarily exhibit financial gains immediately for a number of reasons. These authors’ study of 63 ERP-adopting firms against matched pairs of non-adopting firms lent support to their argument.

Critically discuss why ERP systems change the role of managers in the planning and control of ICT in the organisation

ANS-Impact of the ERP System on Management Control Systems

Based on Anthony and Govindarajan’s (1998) study, a management control system is a process by which a manager monitors and guides other members of the organization to ensure that decisions are made throughout the organization while increasing the chance of achieving the organization’s desired objectives, strategies, and organizational performance. It is a tool to aid management as well as gather and apply the information to evaluate the performance of different organizational resources (Kallunki et al., 2011), such as human and financial resources, as well as taking the organizational strategies into consideration. Its information-based routines and procedures are used by managers in the organization to ensure efficient and effective organizational activities

The implementation of an ERP system undeniably changes a company’s operations and procedures, including the nature of the job and role played by accountants. In the accounting literature, the impact of ERP system on the work of an accountant has been recognized as one of the most important factors shaping the demand for the accountants’ expertise, knowledge, skills, and responsibilities in the future. ERP makes computerized knowledge and skills, like an accounting information system (AIS), more important, which are significantly emphasized by accounting programmes and courses in colleges and universities that offer accounting programs

successful ERP implementations increase data quality, improve decision making, and enhance automation through a higher number of autogenerations compared to traditional or pre-ERP system implementations. Thus, in addition to the skills of compiling data and preparing financial statements, accountants also need to improve their abilities to communicate effectively and perform analytical analyses accurately

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