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Critical Factors in ERP Projects

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					Agenda
 What is ERP?
 ERP Benefits
 Facts about ERP projects
 Critical Factors in ERP implementation
 ERP Failure Critical Failure Factors
 Case Study
 Conclusion



                                           2
Enterprise Resource Planning (ERP)
is..
 a commercial software package that promotes
 seamless integration of all the information flowing
 through a company. (Dawson & Owens, 2008)




                                                       3
ERP Benefits
 Improvements in:
    Cooperation between managers and employees;
    Consolidation of finance, marketing and sales, human resource, and
     manufacturing applications;
    Management information available- real-time information available
     anywhere, anytime;
    Informal systems for materials management/ inventory/production
     control;
    Lead-times, manpower costs, overtime, safety stocks, work-in-progress;
    Delivery times (Muscatello & Chen, 2008)
    IT infrastructure, involving building business flexibility, IT cost
     reduction, and increased IT infrastructure capability.
    Organisational, relating to supporting organizational changes,
     facilitating business learning, empowering, and building common
     visions.


                                                                              4
Facts About ERP projects
 65% of executives believed that ERP could be harmful
  to their organizations.( Muscatello & Chen, 2008)
 Robbins-Gioia , an Alexandria, Va.-based program
  management consulting firm, recently reported that :
   51 percent of ERP projects are considered failures,
   a full 30 percent far exceed budget and miss their
    completion dates by a wide margin (Caruso, 2007)
 25% of organizations adopting ERP systems faced
 significant resistance from staff and that 10% of the
 organizations also encountered resistance from
 managers(Muscatello & Chen, 2008)
                                                          5
Critical Factors
   Project Champion
   Project Management
   Business Plan and Vision
   Top Management Support and Executive Commitment
   ERP Team and Composition
   Project Support and Effective Communication
   Legacy Systems and Informaion Technology
   Business Processes
   System Integration
   System Testing
   A Vanilla ERP Approach
   Software Selection and Support
   Strategic Initiatives
   Human Resources
   Training
   Data Quality
   Vendor Resources
   Organizational Culture
   Competitive Analysis of Enterprise Integration Strategies
   Organizational Knowledge Management
   Risk Management
   Readiness


                                                                6
Project Champion
 An advocate for the system who is unswerving in
  promoting the benefits of the new system
 The project champion should be a high-level executive
  sponsor who has the power to set goals and legitimize
  change (Dawson & Owens, 2008)




                                                          7
Project Management
 Establishment of the scope of the ERP implementation project
 Determining the involvement of business units and the amount of
    project reengineering
   Definition of milestones and critical paths
   Deadlines within the schedule and budget (Dawson & Owens, 2008)
   Definition change control procedures and holding everyone to them
    (Muscatello & Chen, 2008)
   Establishment of a disciplined PMO (program mangement office)
    which will create business value within IT and concern not only with
    deadlines and plans but also with strategic alignment, or achieving
    tangible business improvement (Caruso, 2007)




                                                                           8
Business Plan and Vision
 A clear business plan and vision to steer the direction of the
  project
 A clear business model, a justification of investment, a
  project mission and identified goals and benefits (Dawson
  & Owens, 2008)
 Organizational preparedness with respect to
    technology such as computers and network connections,
    “soft factors” such as
      Education
      training,
      the maturity of current processes
      commitment to release the right people as well as the top
       management’s commitment (Helo,2008)


                                                                   9
Top Management Support &
Executive commitment
 Top management advocacy, provision of adequate
  resources and commitment to the project
 Commitment of senior management with their own
  involvement and willingness to allocate valuable resources
  to the implementation effort (Dawson & Owens, 2008)
 Top management should understand the degree of the
  changes and supports (Muscatello & Chen, 2008)
 Cooperation of top management with the steering
  committee and the development of communication makes
  top management support become visible. (Bueno,2008)

                                                               10
ERP Team and Composition
 A cross-functional – flexible team consisting of the best
    people in the organization which will deal with the
    problems as they arise in the implementation process
   A mix of consultants and internal staff so the internal staff
    can develop the necessary technical skills for design and
    implementation
   Managers should be assigned full time to the
    implementation
   Partnerships should be managed with meetings scheduled
    regularly (Dawson & Owens, 2008)
   Involvement of potential users in the main stages of the
    ERP implantation (Bueno,2008)
                                                                    11
Project Support and Effective
Communication
 The formal promotion of project teams and the advertisement of
  project progress to the rest of the organization
    Monthly bulletins, newsletters, weekly meetings, and frequent e-
     mail updates(Nah, Islam & Tan, 2007)
 Communication of expectations from upper managers to bottom
  operators,
 Creating awareness of ultimate business process changes
  (Dawson & Owens, 2008)
 Information about how the system will help employees do their
  jobs better will eliminate conflict between the logic of the system
  and the logic of business processes
 Cooperation to eliminate resistance to change (Muscatello &
  Chen, 2008)

                                                                        12
Legacy Systems and Information
Technology
 The existing business and legacy systems determine the IT and
  organizational change required for success (Dawson & Owens,
  2008)
 Another challenge is internal staff adequacy, Software and
  hardware expertise should be gained.
 ERP systems selection based on the current technology and
  business process may be a mistake since it is very limiting
  (Muscatello & Chen, 2008)
 Awareness of:
    The amount of process and technology change
    The degree of difficulty in getting users to modify behavior and
     ultimately
    the cultural change required to fully tap the potential of the
     software's tools and processes(Caruso, 2007)

                                                                        13
Business Processes
 Reengineering of business process activities:
    identifying and improving the efficiency of critical operations
    restructuring important non-value-adding operations
    eliminating inefficient processes
 while reengineering business processes:
    a uniform response, common goals and homogenous vision
     should be created, so uncertainty and failure rate is
     minimized (Muscatello & Chen, 2008)
 Consideration of the adoption of a new enterprise system
  as an opportunity to improve the way it does business,
  rather than an interruption of the status quo (Caruso,
  2007)
                                                                       14
System Integration
 Not all middleware technologies to integrate software
  applications are available for all ERP systems.
 Moreover, middleware vendors often tend to focus on the
  technical aspects of application inter-operability rather
  than linking business processes together
 Many times, organisations develop their own interfaces for
  commercial software applications
 When it comes to maintaining, IS personnel are faced with
  the challenge of managing and keeping it integrated with
  other organizational systems
(Al-Mashari,2003)

                                                               15
System Testing
 Going live on the system without adequate and
  planned testing is a recipe for an organisational
  disaster
 When business processes are up and running, an
  important test is of whether the processes described
  and represented in the application system
  actually match with the processes taking place in the
  organisation
 (Al-Mashari,2003)


                                                          16
A Vanilla ERP Approach
 A minimum customization and an uncomplicated
  implementation strategy
 Change in the business to fit the software with
  minimal customization)
 Purchase the package that fits best into its business
  processes (Dawson & Owens, 2008)




                                                          17
Software Selection and Support
 Ensuring software fit
 A systematic requirements assessment is a must
 Make use of knowledgeable outside consultants for the
 assessment, if there is a lack of internal knowledge of
 ERP systems (Muscatello & Chen, 2008)




                                                           18
Strategic Initiatives
 The ability to set strategic goals in order to use the
  information to drive the business
 ERP system that is not strategically tied into the supply
  chain will lack the ability to provide the type of
  business intelligence that is needed to grow the
  business(Muscatello & Chen, 2008)




                                                           19
Human Resources
 Taking into account the new organizational,
  interdepartmental, and personnel aspects of work
  organizations
 Managers considering the skill development needed
  by employees
 Sufficient training and education of current employees
  or hiring of outside consulting help (Muscatello &
  Chen, 2008)



                                                       20
Training
 Sufficient and timely training
    fundamental ERP systems education
    technical training in the usage of the ERP software
    in international cases additional cultural and language
     training(Muscatello & Chen, 2008)
 Managers must be proactive in securing the
  technology training to insure that their technical
  employees can run the ERP system effectively



                                                               21
Data Quality
 Crucial points to take into consideration:
    The data accuracy
    Consistency
    Frequency of use
    Redundancy
    Data relevancy
    Data cleansing
    Consolidation
    Transformation
    Validation(Caruso, 2007)


                                               22
Vendor Resources
 Good determination of how much to work with the
  software providers and vendors
 how much of which businesses should be done by
  vendors, which processes should be in –house,
 Avoidance of relying too heavily on the vendor to be
  able to improve its business and to make key critical
  decisions (Caruso, 2007)




                                                          23
Organizational Culture
 Open, supportive, and learning organizational culture
   encourages involvement/participation and adaptation
   leads top management to learn to accept and adapt to
    the new and help them more likely convince and
    persuade the rest of the organization.
   helps ERP cross-functioanal team members understand
    and appreciate the different strengths and skills that
    each member brings to the teams
   encourages increased interaction and improved
    communication throughout the organization(Nah,
    Islam & Tan, 2007)

                                                             24
Competitive Analysis of Enterprise
Integration Strategies
 When a new ERP system or an upgrade is
  considered it may be best to begin with a formal
  analysis of the market leader’s IT strategy
 competitive assessment matrix used in
  strategic planning that addresses such factors as
  product quality, range of products, customer
  service and price
     management scope: how transaction-
       processing data can be projected up the
       organization hierarchy in support of tactical
       and strategic decision-making processes
      business process range: which divides the
       primary activities of the firm into inbound
       logistics, operations, outbound logistics,
       marketing and sales, and service
      supply or value chain depth:which
       represents the extent to which data are
       shared with suppliers and customers.
(Briggs,2007)                                          25
Organizational Knowledge
Management
 facilitating the sharing of knowledge among members of the ERP team
 communications and interactions with end users and user managers to
  both become aware of their expectations of the new systems and keep
  them informed about the changes
 The selecting stage: knowledge management systems to organize the
  information regarding different types of enterprise system packages so
  that firms looking for an ERP package can compare and choose the one
  that best fits their organizational context and fulfills their
  requirements.
 The implementation stage: keeping an organized record of the
  problems in design and practice of the new system along with their
  tested answers is a valuable
 The using stage: knowledge management systems that provide the
  accurate and timely information about the issues range from
  compliance of the data plugged into the system
(Vandaie,2008)

                                                                        26
    Organizational Knowledge
    Management cont’d
          Transfer of the explicit part or the codified business processes does not pose much complexities.
           However, transferring the tacit part of this knowledge urges for intimate communication and
           informal relationship between the source and the recipient of knowledge.
          Tacit knowledge sharing facilitators:
              structure of team interactions (the physical work space, hierarchy of the team membership)
              atmosphere of the team (the behavioral norms within the team,feeling inhibited)

Process-based nature of organizational
knowledge.
       One extreme of such behaviors is to adopt the
       entire process knowledge from the new system
       and change the organization’s paradigm
       accordingly.
       On the other extreme it could result in
       extensive customizations of enterprise system
       to incorporate the organization’s process
       knowledge and paradigms into the system
Organizational processes embed substantial
knowledge of the organization’s history and can be
regarded as the organizational memory. methods of
dealing with the knowledge barriers:
Arranging powerful core enterprise system
implementation teams
effective utilization of external consulting
(Vandaie,2008)                                                                                                 27
Risk Management
 governance-related issues
     Passive governance bodies
     insufficient or inadequate representation
     mixed or declining participation rates
     inadequately resolving escalation issues
     No active engagement and drive in the project
 Poor project setup:
     determining the most appropriate project design and development methodology;
     setting the right budget
     securing the necessary funds
     choosing the right vendor partner(s)
     Objectively assessing risk
 Partner engagement,Business ownership, sponsorship and participation
 Poor change management
 Poor project management
 Red flags-
(Bannerman,2008)


                                                                                     28
The Role of Readiness for Change
 Implementation of ERP systems considered a failure, partially because
  potential users resist the change.
 Readiness plays an active role in reducing resistance to such efforts.
 Readiness for change had an indirect effect on behavioral intention to use an
  ERP system.
 Readiness enhanced by two factors:
    organizational commitment
    Perceived personal competence
   (Kwank,2008)




                                                                                  29
General overview of CSFs
(Bueno,2008)
                           30
ERP Failure
 There have been many reports of unsuccessful ERP
 implementations within business. and failures of ERP
 system implementation projects have been known to
 lead to problems as serious as organizational
 bankruptcy (Bulkelery,1996; Davenport, 1998; Markus
 et al., 2000).
Critical Failure Factors (CFFs) for
ERP Implementation
 Poor consultant effectiveness
 ERP Software misfit
 High turnover rate of project team members
 Poor IT Infrastructure
 Poor knowledge transfer
 Unclear Concept of the Nature and Use of the ERP system from
  the Users’ Perspective
 Unrealistic expectations from top management concerning the
  ERP systems
 Too tight project schedule
 Users’ resistance to change
Poor consultant effectiveness
  Consultants may;
     be inexperienced with ERP systems and unable to provide a
      professional level of advice on EPR project planning.
     communicate ineffectively during the project
     Not prepare a detailed test plan and not suggest guidelines
     deliver poor quality of training
     not provide any consulting service on project management, or
      ERP implementation.
ERP Software misfit
 Due to poor ERP selection and evaluation process, ERP
 software may be found to be ill fitting with the
 business requirements.
High turnover rate of project team
members
 As project team members suffered from high work
 stress and tremendous workload when coping with the
 implementation, some members may be resigned from
 their jobs. This may contribute to the insufficient ERP
 knowledge and skill transfer among project team
 members during the ERP implementation life cycle.
Poor IT Infrastructure
 Due to top management’s insufficient financial
 resource provided for the implementation budget, a low
 performance IT infrastructure hardware may be
 proposed by the consultants and project manager so as
 to reduce the costs of ERP implementation. The poor IT
 infrastructure contributes to the slow processing
 capability of the ERP system.
Poor knowledge transfer
 If consultants are inexperienced in the use of the ERP
 system, they can not deliver professional ERP training
 to the users.
Unclear Concept of the Nature and Use of
the ERP system from the Users’ Perspective”
 Poor quality of training provided by the consultants
 and insufficient education delivered by the top
 management and project team, users may not be given
 a clear idea of the nature and use of the ERP system.
 Therefore; they may not understand the rationale for
 implementing the ERP system or the process of
 implementation.
Unrealistic expectations from top
management concerning the ERP systems
 Top management may assume that ERP
 implementation could provide great solutions without
 considering the complexity of the ERP system, the
 possible implementation process complications and
 the associated risks. This may give the whole project
 team and users unrealistic expectations.
Too tight project schedule
 Top management and the project manager may like to
 reduce the budget of the ERP project, and thus they
 may set too tight a project schedule. Implementation
 activities were conducted in a rush in order to meet the
 project deadline. The project team and users were
 overloaded and thus they might have had higher
 resistance to change. Some users were absent from
 training as they were tooexhausted. It resulted in poor
 knowledge transfer.
User’s Resistance to Change
 Due to a limited knowledge of formalized business
 processes and ERP systems, as well as work overload
 during the implementation process, users were
 resistant to change.
Case Study: Case Focus
 Case focus is on the company’s Hong Kong branch
  office, where the sales turnover rate is more than
  400 million US dollars. The top management of the
  company had reserved 1.3 million US dollars for
  ERP implementation, taking into account
  hardware, software license, networking and
  consultancy service charges. They recruited ERP
  consultants (from one of the big four accounting
  and consulting firms of the India and Hong Kong
 branch office) who implemented ERP software for
 the corporate India branch office.
Case Study: ERP Implementation Process
from a Failure Case
 This study illustrates the implementation process of a
  failed ERP implementation case study in a
  multinational company.
 The study belong to
    Ada Wong (The University of Warwick)
    Harry Scarbrough (The University of Warwick)
    Patrick Chau (The University of Hong Kong )




                                                           43
Case Study: ERP Implementation Process
from a Failure Case cont’d
    In this study the assessment of failure are examined at 4(four)
     different phases during the adopting organization’s experience
     with an ERP system.
    1.   Chartering Phase: (project planning, budget formulation and
         design of IT infrastructure)
    2.   Project Phase: (ERP system configuration, conducting BPR and
         providing training to the project team members and end users. )
    3.   Shakedown Phase: (stabilizing, eliminating “bugs” and settling
         normal operations)
    4.   Onward and Upward Phase: (Maintaining systems, supporting
         users, getting results, upgrading and systems extensions. )
Reasons for Failure: Chartering Phase
     Unrealistic Expectation: Top management thought that ERP
      was like a “dream” that would make all wishes come true, and hey
      did not consider the complexity of the ERP system and the
      difficulties of implementation.
     Unfeasible Budget Design: As they had less than 1.3 million US
      dollars for the whole ERP adoption budget, top management
      finally realized that resources may not be sufficient. They took
      the decision to spend less money on hardware(server). Therefore;
      servperformance was extremely poor and the users complained
      about the slow response time of the ERP system.
Reasons for Failure:Project Phase
     Poor Communication between Consultants and Internal
      Staff: The consultants could speak fluent English (with a strong
      Indian accent), but the middle and operational staff of the
      organization found it difficult to understand their accent. Thus,
      they could not fully understand the ERP concepts, functionality,
      and the use of the ERP system for daily operations.
     Failure to Redesign Business Process: Consultants did not try
      to understand their current business process or identify the gap
      between business process and ERP system functionalities. They
      simply copied the configuration from the India branch office
      without conducting a sufficiently detailed investigation or
      verification of the suitability of configuration copying.
Reasons for Failure:Project Phase
cont’d
     Lack of Business Analyst: None of the staff members had any
      business analyst experience with ERP implementation, and the
      results of business requirement mapping were found to be very
      poor.
     Incorrect System Configuration: As the ERP system was a new
      release version, consultants were not familiar with the new
      functions, they did not know how to configure the system, and
      ERP training was not professionally delivered. Project team
      members found that the system configuration was incorrect, and
      they needed to rely on another team of consultants to fix the
      problems.
     Insufficient Training and Reskilling of the IT Workforce:
      Middle and operational level staff members were overloaded with
      work as no extra human resources were allocated to lighten their
      full-time job burden. They attended training during the daytime,
      but they were required to complete their tasks in the evening.
      Some of them even worked overnight to complete their ERP
      project and business operations. Top management did not
      allocate extra human resource to cope with this increased load.
Reasons for Failure:Project Phase
cont’d
   Insufficient Testing: Top management had conducted a meeting
    with all the project team members and had discussed the issues of
    our non-readiness for ERP system to “go live”. They understood that
    their insufficiencies (in both training and testing) might cause
    problems with ERP implementation. However, they finally agreed
    to “go live”, even though they were not ready. The project team
    agreed to devote their time and effort to solve problems and
    believed that they could solve all the problems gradually after the
    system was implemented.
Reasons for Failure:Shakedown Phase
     Problem with System Bugs: The Senior Logistics Manager
      found that the vendor’s new release version of ERP system was
      full of bugs because the vendor did not conduct sufficient testing
      before introduction. He complained that the Consultants were
      not familiar with the new demand forecast function. He finally
      realized that he paid a high cost for this incorrectly installed
      function, which misled his management decisions and logistics
      planning.
     Excessive Stress and High Turnover of IT Personnel: IT
      personnel were under high stress and worked overnight to solve
      all the ERP implementation problems. Two staff members
      determined to resign from their current position, so the IT
      manager needed to manage most of the IT problems.
Reasons for Failure:Shakedown Phase
cont’d
     Receiving Complaints from Customers and Suppliers: Due
      to poor knowledge and insufficient skills in using the ERP
      System, the product master file was incorrectly entered. The
      product unit and sales price were inaccurately shown on the sales
      invoices. Thousand of Hong Kong dollars were erroneously
      written as million of dollars.
     Absence of Sharp and Fast Improvement: Consultants left the
      company a month after the system “go live” date, even though
      they knew that the system was unreliable. ERP project team
      members tried to solve the problem using a trial-and-error
      approach. This resulted in an absence of sharp and fast
      improvement during the shakedown phase.
Reasons for Failure:Onward and
Upward Phase
     Failure to Retain Trained IT Staff: Some of the staff (in
      accounting and IT), after receiving ERP training, left the
      company due to high stress and work-overload. Top management
      hired another team of ERP consultants to re-configure the system
      and provide training services. After 8 (eight) months of
      confusion, the ERP System became more stable and could
      provide support tothe business operations. The IT manager
      continued to report system bugs (including the poor quality of
      the demand forecast function) to the ERP vendor, and it took a
      year to fix them
Conclusion
 The ERP system..
    is not a simple information system
    cannot automatically drive the strategic and tactical
     changes
    is a strategic and tactical revolution which requires a
     total commitment from all involved.




                                                               52
Conclusion cont’d
 The ERP system..
    be implemented by taking these critical success factors
     into account:
        Project Champion                       Software Selection and Support
        Project Management                     Strategic Initiatives
        Business Plan and Vision               Human Resources
        Top Management Support and Executive   Training
        Commitment                             Data Quality
        ERP Team and Composition               Vendor Resources
        Project Support and Effective          Organizational Culture
        Communication                          Competitive Analysis of Enterprise
        Legacy Systems and Informaion          Integration Strategies
        Technology                             Organizational Knowledge Management
        Business Processes                     Risk Management
        System Integration                     Readiness
        System Testing
        A Vanilla ERP Approach




                                                                                     53
Conclusion cont’d
 The ERP system..
    be implemented by taking these critical failure factors
     into account:
                   Poor consultant effectiveness
                   ERP Software misfit
                   High turnover rate of project team
                   members
                   Poor IT Infrastructure
                   Poor knowledge transfer
                   Unclear Concept of the Nature and Use of
                   the ERP system from the Users’ Perspective
                   Unrealistic expectations from top
                   management concerning the ERP systems
                   Too tight project schedule
                   Users’ resistance to change



                                                                54
References
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   Dawson, J. & Owens, J. (2008). Critical Success Factors in the Chartering Phase: A Case Study of an ERP Implementation.
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                                                                                                                                 55
References
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