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CUSTOMIZATION AND BEST PRACTICES MODEL FOR ADOPTING ERP SYSTEM:

AN ANALYSIS

Conference Paper · June 2012

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 CUSTOMIZATION AND BEST PRACTICES MODEL FOR ADOPTING ERP SYSTEM: AN ANALYSIS

RRK Sharma, Indian Institute of Technology, Kanpur, India

S. M. Patil, Indian Institute of Technology, Kanpur, India
Adhir Tandon, MNNIT, Allahabad, India

ABSTRACT

While adopting/installing ERP packages, organizations face the choice: adopt best practices of the
industry or go in for customization. We present an analysis that relates ERP package requirements to
strategy of the firm. We argue that best practice model that collects best practices of the industry is
unable to meet specific strategic priorities of a firm. In particular, ‘defender’ (that strives for cost
leadership) and ‘prospector’ (that strives for differentiation) may not benefit if they import ERP systems
from each other. In such situations organizations have to go in for customization. A pilot study of 14
organizations gave support to our framework.

Keywords: Enterprise Resource Planning, ERP customization to suit organization strategy, best
practices model for adopting ERP

1. INTRODUCTION

ERP is an enterprise-wide set of management tools that balances demand and supply, containing the
ability to link customers and suppliers into a complete supply chain, employing proven business
processes for decision-making, and providing high degrees of cross-functional integration among sales,
marketing, manufacturing, operations, logistics, purchasing, finance, new product development, and
human resources, thereby enabling people to run their business with high levels of customer service and
productivity, and simultaneously lower costs and inventories; and providing the foundation for effective e-
commerce (Wallace and Kremzar, 2001).

ERP is an integrated information system servicing all aspects of the business, which handles
transactions, maintains records, provides real time information and facilitates planning and control
(Davenport, 1998). But effectiveness of ERP system, according to him, depends upon the success of the
implementation of life cycle. An ERP implementation should not be viewed purely as an IT project. It is a
multidisciplinary team effort. It cuts into the very heart of the business, upturning policies, practices and
powerbases.

Enterprise resource planning systems are defined as software systems for business management,
encompassing modules supporting functional areas such as planning, manufacturing, sales, marketing,
distribution, accounting, financial, human resource management, project management, inventory
management, service and maintenance, transportation and e-business (Hossain, Patrick and Rashid,
2002). This architecture of the software facilitates transparent integration of modules, providing flow of
information between all functions within the enterprise in a consistently visible manner.

ERP system is a set of business applications or modules, which links various business units of an
organization such as financial, accounting, manufacturing, and human resources into a tightly integrated
single system with a common platform for flow of information across the entire business (Davenport,
1998).

Definitions given by various authors highlight various specification of ERP as follows:

balances demand and supply, containing the ability to link customers and suppliers into a
complete supply chain
employing proven business processes for decision-making
providing high degrees of cross-functional integration among various departments
levels of customer service and productivity

  
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 lower costs and inventories; and providing the foundation for effective e-commerce
handles transactions, maintains records, provides real time information and facilitates planning
and control
ERP implementation is multidisciplinary team effort
ERP integrates various departments into single system giving them common platform for flow of
information across the entire business

2. BEST PRACTICES AND CUSTOMIZATION OF ERP PACKAGES

2.1 Best Practices for ERP implementation

ERP can be proved beneficial to organization through various ways depending upon nature of business,
success of implementation. One of the benefits of ERP system is implementing best practices into
business operations. As developer and vendor try to incorporate various best practices in the ERP
package, pre-configured ERP systems bring embedded business processes, functionality, and
configuration to the table. Best practices are generally considered the way to avoid failure while ERP
implementation. For major ERP package vendors, best practice is the way to transfer the past successful
experience to the new ERP projects, to make the implementation effective and efficient. In previous
studies authors tried to elaborate how the best practices can help the ERP implementation to achieve
success.

For the success of large project it is necessary to unearth the best practices (Ferratt, Ahire and De, 2006).
It is also suggested that manager should follow the best practices to as great an extent as possible, while
developing an understanding of the major factors which make the project large and risky. But he also
suggested that deliberately and carefully deviating from the best practices may also be effective.

Successful development and implementation of systems is dependent on an organization’s ability to

effectively implement best practices, commonly referred to as disciplined processes, which are essential
to reduce the risks associated with these projects to acceptable levels (Swan et al., 1999). In the other
hand the failure to effectively implement disciplined processes and the necessary metrics to understand
the effectiveness of processes implemented increases the risk that a given system will not meet its cost,
schedule, and performance objectives.

ERP package vendors see Best Practice as the medium to transfer the past successful experience to the
new ERP projects, to make the implementation effective and efficient. So best practices have been given
large importance by the vendors.

It is stated that successful transplanting of best practices has positive impacts on the success in ERP
implication, through reducing the cultural discrepancies, boosting project efficiency, and empowering
coordination of systems integration (Huang et.al., 2004). He stated that transplanting BP from the parent
company to subsidiaries indeed plays a key role in the implementation of ERP systems.

2.2 Odds against use of best practices

Best practices claimed by the vendors are not always in favour of the success of business of client. It is
stated that there is need to manage tensions between the interests of IS suppliers in selling generic ‘best
practice’ solutions and the interests of users in designing solutions which is best suitable for organization
(Swan et al., 1999). According to them the notion of ‘best practice’ in information systems for operations
management, as presented by technology suppliers (i.e. plain vanilla implementation of standard
packages) is shown to be both illusory and potentially disruptive.

The reasons because of which best practices failed are:

Organization has unique manufacturing problems
Need of flexible information system
Difference in interest of IS and best practice provider and organization

  
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 Users do not give time to fully understand the software package.

3. CUSTOMIZATION

To be successful with ERP implementation, either organization has to adopt according to ERP with
deploying best practices suggested by vendor or ERP has to be customized to meet the specific needs of
organization.

Though customization is difficult decision for the organization, it is an integral part of ERP solutions.
Decision of customization also plays an important role in the success of ERP. Customization requires
expertise in software solution as well as business process. It is time consuming procedure and increases
the expenditure. Thus management has to take the decision very carefully. There are many views and
counter views of authors regarding customization.

According Report by Panorama Consulting, only 23% of organizations implement vanilla ERP software
with little to no customization. The remainder of organizations customized their software, with 34%
indicating that they heavily customized their software. Also, large companies with over $500 million in
annual revenue are even more likely to customize their software

3.1 Reasons behind customization

It is stated that generic ERP software often lacks key components needed in manufacturing operations
(Harris, 2000). It is possible for large organization to integrate the necessary functionalities in the
software, but lack of key components can cost the small organization their business competency. Though
there are some vendors offering industry specific software, it lacks industry specific needs. If two
businesses are different and their packages are same, customization becomes inevitable. According to
him following are the some of the main reasons of ERP customization:

Need of different formats of reports or specific reports.

Adding data field to data base
Lack of business process knowledge of Code developers

It is stated that, high customization may occur because of unnecessary redevelopment of functionality
that is available in the ERP system standard, resistance to change based on cultural issues and low
project acceptance, insufficient weight given to the implementation team’s recommendations, and the
implementation team’s lack of opposition to customization requests (Rothenberger and Mark, 2009).

It is suggested that, despite ERP customization will have catastrophic consequences, it is still undertaken
in some form, with mixed results (Light, 2005). There is little point in saying customization is necessarily
‘good’ or ‘bad’, it is undertaken and it is important to understand why. He found reasons behind the
customization.

The necessary functionalities are not present in the ERP package provided by the
To make ERP system more user friendly and increase its acceptance by users.
For increasing the efficiency of the operation of the ERP package.
To embed the best practices desired by the organization in the ERP package.
Lack of power of project team to prevent customization
To facilitate a smoother implementation.
To simplify the amount of time taken to carry out their day-to-day operations.
To reduce the number of staff in organization hence reducing costs.
To add value to the ERP package.
To maintain existing ways of work that was perceived of value to those at Home.

  
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3.2 Types of customization

It is stated that, the primary goal of customization in ERP implementation is to achieve a fit between the
ERP system and the process that the system supports. Thus, both the system and the process can be
changed or customized to achieve the goal (Luo and Strong, 2004). They referred two main types of
customization:

Technical customization: When the system is customized to fit the process.

Process customization: When a process is customized to fit the system

They have developed framework for identification of customization options based on the degree of
changes undertaken for both the ERP system and the business process

It has been explained that three types of technical customization options are available to organizations:
module selection, table configuration, and code modification (Davenport, 2005).

1. Modules selection: Companies have choice of selection of ERP modules suitable for their
business. Some modules are essential while others are not necessary to run the business. In this
case, technical customization is achieved through the company’s decision as to which modules to
implement. In general, the greater the number of modules selected, the greater the integration
benefits, but also the greater the costs, risks, and changes involved.

2. Configuration tables: A configuration table enables a company to tailor a particular aspect of the
system to the way it chooses to do business. A key requirement for table configuration is to
understand the meaning and consequences of each configurable option in each table. Since
there are numerous tables in a typical ERP system, this can be a very complex and time-
consuming task, especially when interdependencies among options across various tables and
modules need to be considered.

3. Code Modification: It involves rewriting some of the ES's code, or building interfaces between
existing system and the ES.

Process change is classified into three categories: no change, incremental change, and radical change
(Strong and Luo, 2004).

No change, process customization involves only changes in tasks and resources, but no changes
in relationships among tasks and configurations of resources. An example of such process
customization is task automation in which computer technologies are substituted for manual
labor. Then, the resources used to accomplish the task have been switched from manual labor to
computers but the other elements of the business process remain the same.

Incremental change in which improvements are made not only in tasks and resources, but also in
relationships among tasks and relationships among tasks and resources. The nature of the
process and its outcome measures, however, has not changed. The focus of the change is
solving problems found in the process.

Radical change is the third category of process customization. It involves the fundamental
rethinking and radical redesign

3.3 Advantages and disadvantages of customization

Customizations that must be carried over from one version of enterprise software to the next are the
biggest technology headache and ROI killer that CIOs face in upgrades (Beatty and Williams, 2006).

  
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Many times organizations are not sure why to modify the software. Organization may modify the software
to support the function in question, ideally enabling it to be done even better. But sometime it is modified
to do processes which are already occurring (Wallace and Kremzar, 2001).

It is stated that, an enterprise system is, after all, a generic solution (Davenport, 2005). Its design reflects
a series of assumptions about the way companies operate in general. Vendors try to structure the
systems to reflect best practices, but it is the vendor, not the customer, that is defining what "best" means.
In many cases, the system will enable a company to operate more efficiently than it did before. In some
cases, though, the system's assumptions will run counter to a company's best interests. But Some degree
of customization is possible as the systems are modular, for instance, companies can install only those
modules that are most appropriate to their business. However, the system's complexity makes major
modifications impracticable.

Companies should adopt BPR to adapt to ERP system, and should not modify the package to adapt to
business process (Lambert et al., 2000). Pitfall of customizations are as follows (Harris, 2000):

Developing a new code or rewriting a code require skilled developer

Rewriting a code can disturb the balance of software package and can hamper its working
Upgrade of customized software is difficult and can cost several weeks and huge money
Customization can consume the resources which are vital for other projects

4. RELATING STRATEGY OF A FIRM AND CHOICE OF ERP PACKAGE

4.1 Business strategy

It is stated that those different company strategies arise from the way companies decide to address three
fundamental problems: the entrepreneurial problem, the engineering problem, and the administrative
problem (Miles and Snow et al., 1978).

4.2 Relation between business strategy and IT project

It is suggested that the levels of alignment between various businesses and IS strategies (Sabherwal and
Chan, 2001). According to them, for prospectors the alignment between IS strategy and the IS for
flexibility strategy is positively associated with perceive business performance. While in analyzer the
alignment between IS the alignment between IS strategy and the IS for comprehensiveness strategy is
positively associated with business strategy. So alignment between IS strategy and business strategy
improves business performance.

TABLE 1: STRATEGIC ATTRIBUTES OF ORGANIZATIONS

Business Strategy Defenders Prospectors Analyzers

Attributes
Defensiveness High Low Medium

Risk Aversion High Low High

Aggressiveness Medium High Medium

Proactiveness Low High Medium

Analysis Medium Medium High

Futurity low High Medium

  
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 TABLE 2: RELATION BETWEEN IS AND BUSINESS STRATEGY, SABHERWAL AND CHAN (2001)

Is strategy Defenders Prospectors Analyzers

IS role Efficiency Flexibility Comprehensiveness

IS structure Centralized De-centralized Shared

Operational support High Low Medium

Market Information Low High High

system

4.3 Role of business strategy in success of ERP implementation

He analyzed six dimensions of strategic orientation:

Aggressiveness—the allocation of resources to improve the organization’s market positions faster
than its competitors.
Analysis—the decision-making behavior of organizations, to achieve internal consistency in
resource allocation, and to the use of appropriate management systems.
Defensiveness—the behavior of companies that focus on cost reduction, efficiency seeking
methods in defending core technologies.
Futurity—the idea of a desired future, key strategic decisions that have either a long- or short-
term focus.
Proactiveness—involvement in emerging industries, continuous search for market opportunities,
and trying out potential responses to a changing environment.
Risk aversion—reacting to possible risks in resource allocation decisions and the choice of
products and markets.

4.4 Need for considering business strategy for ERP implementation

Systems that would be appropriate for analyzers and prospectors have been identified (Sabherwal and
Chan, 2001). It is stated that market information system and strategic decision support systems are more
beneficial to prospectors. Also for analyzers market information systems, inter organizational systems and
strategic decisions support systems are more useful. So it is possible to conclude that unless the strategic
similarities exist between two business organizations, imitation of competitor’s information system will be
less useful.

5. EFFECT OF ERP IMPLEMENTATION ON ORGANIZATION

It was found that defenders use "Big Bang" approach to ERP implementation (Sharma, Tandon and Nair,
2010). It was found that with ERP implementation the use of power goes up significantly across all levels
of managers (Sharma and Sharma, 2007). It was also found that the delegation and autonomy goes
down across all levels of managers. Need for people skills come down with the lower level managers;
middle level managers are left with lesser privileged information; standardization went up significantly
after ERP implementation; complexity of work flow has gone down significantly; and flexibility of the
organization has reduced substantially after ERP implementation. It was found that flexibility of the
organization increased with ERP in prospector organizations (Sharma and Chaudhary, 2005).

6. THEORETICAL FRAMEWORK

6.1 Relation between organizational strategy and ERP best practices:

In defender, production and finance department are of prime importance; which in prospector R & D and
marketing are main important. Hence we have the following hypothesis:

  
  INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 12, Number 1, 2012 6
Hypothesis 1: Best practices embedded in ERP drawn from prospector organization when adapted by
defender organization would lead to poor fit and dissatisfaction and vice versa.

So customization has to be minimized. One of the reasons behind customization is misfit between ERP
system and business strategy. When the ERP system is not satisfying the need of organization, system
has to be modified. But this need of modification itself arise due to implementation of best practices which
are not matching with organization.

Hypothesis2: Need of customization can be minimized if the best practice for organization are adopted
from another organization with successful ERP implementation with similar strategic orientation.

Defender and prospector have very distinct strategic orientation. For prospector product and market
innovation are main tool of survival while defenders are dominated in particular in their small niche in the
industry. For prospectors technological flexibility permits a rapid response to a changing domain, for
defenders technological efficiency is central to organizational

Hypothesis 3: Defender cannot assimilate the practices of prospector and vice versa.

7. DATA COLLECTION

The data for current research is collected from organizations implemented with ERP. These organizations
are using ERP for more than 2 years. We surveyed all kinds of organizations, that is, prospector, analyzer
and defender. Also data is collected from the case studies of organizations and information published in
the newspapers and websites. Organizations include manufacturing organizations, service providers,
and banks. Purpose of surveying different kinds of organization is to get broad view of subject.
ERP system is playing major role in the business of surveyed organizations. These organizations have
either customized the ERP package provided by vendors or adopted best practices and modified the
business process with little changes in ERP packages.

TABLE 3: TYPES OF ORGANIZATIONS SURVEYED

Sr. Organizations Type Total No. of

No. Organizations
1 Manufacturer of cars, truck, buses 1
2 Manufacturer of pharmaceuticals 1
3 Manufacturer of post harvest processing machineries 1
4 Manufacturer of consumer electronics and networking service 1
provider
5 Manufacturer of consumer goods 1
6 Manufacturer of beverages
7. Technological solution provider in the area of national security , 1
energy and environment
8. IT service provider 1
9. Paint manufacturer 2
10. Textile manufacturer 1
11. Manufacturer of chemicals 1
12 Manufacturer of food and beverages. 1
13. Cycle manufacturer 1

8. DATA COLLECTION AND DISCUSSION

From the study of ERP implementation in above organizations we come to know that there is relation
between the customization, best practices and strategic orientation of organization.

  
  INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 12, Number 1, 2012 7
8.1 Organization successful with Best Practices and Customization

Table 4 shows organization with successful best practices and organization where customization is done
in ERP package.

TABLE 4: CLASSIFICATIONS OF THE ORGANIZATIONS

SN. Organization adopted best practices (with less Organizations

customization) undergone heavy
customization (> 75
%)
Organization Best practices adopted from
1 TMS Other vehicle manufacturer
2 DRD Other pharmaceutical with
prospector strategy
3 RLS Other organization (Best
practices85%, customization
15%)
4 BHI
5 CSO
6 ITS
7 SBM
8 SAC
9 MHS
10 NRC
11 ASP
12 SRT
13 TIC
14 PSP

9. CONCLUSION

Thus we see that limited data that was collected in this study supports to hypothesis developed in this
work. Organization must borrow ERP model from organization having similar strategic orientation. If that
is not possible they must go for customization; and for this they must have enough resources.

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Lambert, A.J.D., Jansen, M.H. and Splinter, M.A.M. (2000). Environmental information systems based on
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AUTHOR PROFILES:

Professor RRK Sharma is a full professor at Department of Industrial and Management Engineering, IIT
Kanpur, India. Professor Sharma has over 78 publications (nationally/internationally) in diverse fields of
management.

Mr. S. M. Patil earned his M. Tech. degree from Department of Industrial and Management Engineering,
IIT Kanpur, India.

Professor Adhir Tandon is a Research scholar at MNNIT, Allahabad, India. Currently he is working as
an Assistant Professor in the Department of Mechanical Engineering at NIEC, Lucknow India.

  
  INTERNATIONAL JOURNAL OF BUSINESS STRATEGY, Volume 12, Number 1, 2012 9

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