ERP implementation and its effect on a few variables of organization structure and manager's job

Journal of the Academy of Business and Economics, March, 2005 by R.R.K. Sharma, Rajesh Chaudhary

ABSTRACT

ERP (Enterprise Resource Planning) systems are used in the organizations for information integration and aligning & streamlining their processes for delivering high value to the customers. Through its very use, it influences manager's jobs and the organization structure as well. This paper seeks to evaluate the impact of ERP on organizations, and examines the ways manager's job and organization structures have changed. We have investigated effect of ERP implementation on five dimensions of Manager's job (autonomy, use of power, delegation, people skills and privileged information), five dimensions of organizational structure (specialization, formalization, centralization, standardization and complexity of work flow) and on the flexibility of organization.

A study was carried out in the three plants of a leading motor company in India. It was found that use of power significantly increased in all the three plants. This was thought to be related to the 'change management' associated with ERP implementation in the firm. This could also be due to strategic shift in the firm's position (firm had now become a 'prospector" from its earlier state of 'defender' (in the framework of Miles and Snow et. al. (1978))) which led to increased 'decentralization' and 'delegation' which increased 'autonomy' of the managers. Managers at the middle level felt that there was significant increase in the amount of 'privileged information' available with them. Need for maintaining informal relations for discharging official duties also remains nearly same for senior and middle level managers; however, lower level managers felt that the need for maintaining informal relations to discharge official duties has decreased. It was also found that in all three plants that the specialization, formalization and standardization had significantly gone up. Using this empirical finding and the theoretical ideas of Frederickson (1986) we propose that if a 'defender" implemented ERP then it will lead to erosion of 'autonomy' of its managers. Thus this pilot study brings out that ERP implementation has significant effect on manager's job and organization structure.

Keywords: ERP implementation, Influence of ERP implementation on manager's job, Influence of ERP implementation on organization structure)

1. INTRODUCTION

Worldwide organizations are going for ERP (Enterprise Resource Planning) systems for information integration and aligning & streamlining their processes for delivering high value to the customers. ERP systems have their roots in MRP II systems which provided support to the production function. ERP systems seek to integrate of information across all functional areas (i.e., marketing, finance, HR, logistics etc.) and hopes to provide increased flexibility to organization in serving its customers.

Studies on ERP have been a recent phenomenon. Most of the papers on ERP have appeared after the year 1995. However most of the previous studies focused on how to make ERP implementation successful. Our paper seeks to study the effect of ERP implementation on manager's job and on organization structure.

2. LITERATURE REVIEW

Jacobs and Whybark give an excellent treatise on ERP (Jacobs and Whybark, 2001). Summary of important issues highlighted by them are given below:

* ERP leads to information integration for the various functions of the business like Accounts, Finance, Marketing, Sales, Production, Vendors, and Distribution etc. It provides the benefit of single data entry, immediate access, and common data. Data are updated in real time, meaning that when data is entered into the system, the changes are immediately available to everyone.

* Prevailing Business processes are replaced by best practices.

* Organizations with multi-plants located all around the globe are benefited the most.

* If information is available quickly and accurately, then resources are put to better and more efficient use.

* ERP implementation is not an easy task. There are horror stories of implementation failures. It assumes all people problems are solved and people cooperate. 'Roles' of some people change significantly due to ERP. This brings in resistance to change which needs to be handled properly.

* Do not implement everything on ERP, most critical areas where information integration is essential, could be put on ERP first.

* Matrix for relationship of centralization & flexibility with architecture of ERP Package is given in the following table.

CIMS (another I/T package) makes factories inflexible. New requirements come up each time and software is really not equipped to handle such requirements, thus making it inflexible (Upton, 1995).

A study in a large aircraft manufacturing organization in the Midwest, USA has found that (Abdinnour-Helm et.al., 2003) the job tenure and job type of an employee influences the attitudes towards ERP system. Newer employee and managers have a more favorable attitude towards ERP system. On the other hand the older employees and employees in the 'staff or 'engineering' category are more doubtful about the benefits of ERP system.