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  1. 1. 2.3 ERP Systems − Purchasing, Implementation and Use Processes Participating company: Wermland Paper Project period: January 1st 2006 – June 30th 2008 Support from KK-foundation until December 31st 2007: 1 400 000 SEK (147 000 Euro) Company contact person: Marko.Arola@wermlandpaper.se Project leader: Odd.Fredriksson@kau.se Background Too many business processes are captured in people’s heads and not in actual IT sys- tems, resulting in fragmented, partially automated, and inflexible processes running throughout the organization. Work items that should be facilitated by technology are in- stead communicated through e-mail, telephone, and paper notes. Clearly, firms need to advance the state of their business processes and the interconnection between IT sys- tems. Today there is a booming market for software packages claiming to provide a total, integrated solution to firms’ information-processing needs. Enterprise information systems (ERP systems) are the new type of computer-based information systems for enterprise integration. ERP systems are configurable information systems packages that integrate information and information-based processes within and across functional areas in an organization. Improved efficiency is most often the major rationale for using them. ERP systems specifically address the need for integration of application programs for various business functions or processes in a firm, such as sales, accounting and manufacturing. Different business applications can all use a common database that serves as the integrating mechanism. ERP systems offer a great opportunity to achieve true connectivity, that is a state in which everyone knows what everyone else is doing in the business. The major changes in business that come with an ERP project is the most difficult and important part to manage. The business processes, the way work gets done in an organization, may change dramatically. Currently, about 40 percent of the Swedish business operations are engaged in ERP projects. Lack of functionality for all stakeholders of a business is partly due to the rigidity and inflexibility of existing ERP systems and business processes. This rigidity is due to inflexibility of existing ERP systems to meet changing business needs, and due to the lack of flexible and effective business processes to represent the business as it operates. This inflexibility of existing ERP systems is partly due to the fact that firms create most application functionality through the integration and combination of multiple systems together. The current movement to Service Orientation is indicating an era of enterprise com- puting based on open standards, Service-Oriented Architecture (SOA), and optimized business processes. This indicates a radical shift from today’s rigid and inflexible systems towards loosely-coupled approaches to ERP application development and diffusion. Functionality thereby becomes redefined so that capability is accompanied with usability and flexibility. ComActivity, a relatively small ERP-vendor firm based in Stockholm with about 40 consultants, offers an ERP solution belonging to this new ERP generation. Key charac- teristics of its ERP solution is graphic modeling development, applying the open deve- lopment tool Eclipse and emerging Web and SOA best practices. ComActivity’s graphic modeling, instead of coding, when designing lean and flexible business processes, elimi- nate 90 percent of the code necessary to represent a business process. Purpose
  2. 2. Since ERP packages touch so many aspects of a firm’s internal and external operations, successful purchasing, implementation and use processes of ERP systems may be critical to organizational performance and survival. Given their breadth and technical complexity, ERP projects are even more difficult and consuming of time and resources than the large reengineering projects. Organizational change often represents a huge part of a successful ERP project. Therefore it is important to attain deeper understanding of problems and outcomes in ERP projects. The main purpose of the project is to better understand what conditions influence on the purchasing, implementation, and use processes for the buyer of a Web-based ERP system. Method The chosen participating focal firm in this project is one among the ones that has chosen the ComActivity ERP system: Wermland Paper (WP). Its annual turnover in 2007 was about 1.1 billion SEK and the number of employees about 360. WP holds market lea- ding positions within selected niches for unbleached kraft paper, both in Europe and glo- bally. In 2003, WP’s management for the next five years formulated three improvement area phases: streamlining, business reorientation and profitable growth. An initial investment analysis conducted at WP showed, among other things, that IT support for financial control was poor and non-existent towards its customers. It was concluded that in order for WP to survive in evolving new market conditions, a clear strategy with IT implemented was needed. WP evaluated seven competing ERPs. After a feasibility study conducted in early 2006, the board of directors for WP in June 2006 decided to invest in the Web-based ComActivity system, which should replace Movex, initially as regards the sales order, inventory and invoicing functionalities. This ERP migration should then be continued with the customer service management (CRM) functionality. The profit margins improved significantly for the focal case firm over the 2003-2007 period. In 2007, its profit margin exceeded 10 percent. The CEO of WP comments that “a large proportion of WP’s growth is attributable to the integration and dialogue with our customers. 70 percent of WP’s turnover consists of sales to customers to which WP is the dominant seller.” Thus, the Sales Portal − offered in spring 2007 − is an important component in WP’s current strategy. The design of the study has been qualitative and interpretative. Mainly personal inter- views and attending project meetings have been used as methods for collecting empirical data. Results – academic A previous frequent source of dissatisfaction for users of many ERP systems are mis- alignments between business needs and ERP system capabilities. This is often due to in- flexibility of ERP systems and too low perceived competence of the ERP-vendors’ con- sultants about the specific business that their systems should support. Interestingly, this project follows and documents how the focal case firm successfully implements an ERP system of the new generation, which is claimed to not create misalignments between the business processes and the system. Given the novelty of the new generation of ERP systems, there is a scarcity of published research articles of this new phenomenon. From a relationship perspective, the business outcomes attained for both parties from the use of a Web-based Sales Portal are important to identify and analyze. Given the obvious relevance of applying a relationship perspective in order to understand customer-perceived value from using Web-based ERP systems for sales applications,
  3. 3. surprisingly enough there is a scarcity of published research articles where a relationship perspective empirically is applied. Results – industry The initial situation in the case firm study illustrates the Babel-like information environ- ments being present in many large firms, in which the same term might mean different things in different parts of the firm. The sales order processes were different across the two mills, creating different inefficiencies. The ERP implementation at WP required a preceding business process redesign of the sales order process, aiming for and resulting in a common sales order process and in common concepts. This standardization of sales order data and processes enabled for WP to link its Sales Portal more easily to its agents and customers. Many organizations approach the purchasing and implementation processes of ERP systems with low competence. From an ‘ERP system buyer−ERP-vendor’ relationship perspective, it is therefore of high relevance for both parties to attain deeper understanding about conditions which contribute to successful purchasing, implementation, and use processes. The strongest arguments for WP when choosing to purchase the ComActivity system were high system and vendor reliability, better system performance and lower cost. In addition, the ComActivity’s development consultant was knowledgeable about the busi- ness of WP, perceived as highly competent and was physically at close quarters. The development phase is perceived by WP to have been a success. WP replaced Movex with ComActivity in half a year. As noted, the ERP implementation was then turbo-charged with a Sales Portal. Insights about business outcomes attained and problems encountered for different stakeholders when using ERP applications are of vital interest for many practitioners. In June 2008, about 50 % of all orders from WP’s agents are placed via the Sales Portal. To exemplify, one of WP’s agents in the UK is very satisfied with the content and usability of WP’s Sales Portal. In addition, this agent had an impact on how the Sales Portal was designed in the implementation phase. As both co-workers at WP and agents were enabled to influence on the ERP system content and design, it is a user- driven development of the Sales Portal. One year after its introduction, it is still modified. What can other firms learn from the perceived implementation and usage success identified in this particular case study? We have identified four main conditions which have had a strong influence on the success of the studied ERP system project. Firstly, the three “heaviest” managers in the top management team (the CEO, the marketing director, the IT director) all had previous experience from ERP migration processes. Secondly, the purchase choice decision of ERP system was right. Thirdly, there was a good symbiosis between highly competent system developers and super- users. Fourthly, it was a short project with high pace. We have chosen to communicate our results through a long book chapter in Swedish in a book on enterprise systems (current book title: “Temperaturen på affärssystem i Sverige”) intended for practitioners and being published at Studentlitteratur. The com- pany contact person has been co-author of this book chapter.