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

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.

ERP system selection is an important task and a thirteen-step selection process to choose the an ERP system is recommended (Umble et. al., 2003) among the competing ones. They examine the factors that, to a great extent, determine whether the implementation will be successful. The most prominent of these success factors as identified by them are as follows : (1) Clear understanding of strategic goals, (2) Commitment by top management, (3) Excellent project management, (4) Organizational change management, (5) A great implementation team, (6) Data accuracy, (7) Extensive education and training, (8) Focused performance measures, and (9) Multi-site issues.

Mandal and Gunasekaran (Mandal and Gunasekaran, 2003) offer suggestions to resolve the issues of implementing ERP during pre and post implementation phase.

Some interesting findings of a survey on implementation of ERP systems in Swedish manufacturing firms are summarized below (Jan and Selldin, 2003).

First, Swedish manufacturing firms are broadly adopting ERP systems; 83.6% have implemented such systems or are in the process of implementing. Second, the cost for implementing ERP systems range from an average of 0.5% of annual revenues for large enterprises up to an average of 3.5% for smaller companies. Thus, the ERP system cannot be considered to be an overwhelming investment for the enterprise. Third, Swedish firms often choose to implement ERP systems from Swedish vendors. Fourth, the modules that are implemented tend to be the core production management modules involved in the customer order process; these modules are also the modules requiring the most customization. Financial accounting and control come next as the most implemented modules. Thus, ERP systems primarily support the material and information flows and secondarily the financial flows. Fifth, the most cited improvements related to ERP systems are concerned with information access and improved intra-organizational interaction. Sixth, given that the ERP penetration is high, most Swedish companies plan to extend their ERP systems with functional support for upstream and downstream supply chain operations.

Kumar (Kumar, 2002) found that with ERP implementation managers became more 'task oriented' than 'human relations oriented'.

In this paper we study the influence of ERP on a few variables of organization structure and manager's job. Below we give a brief literature review on organization structure and manager's job. Five dimensions of Organizational structure are--centralization, standardization, formalization, specialization, and complexity of workflow (Pugh et. al., 1968). We borrowed the scale given by them and modified them suitably for our work. Computerization was associated with both centralization and decentralization in an organization (Daniel, 1977).

The book "The Functions of an Executive" (Barnard, 1966) identifies following as important components of manager's job : strategy formulation and implementation, delegation, sharing of privileged information, managing informal networks, securing co-ordination among different functions. Wilson (Wilson, 1999) reviews various papers on functions of managers and how do they perform these functions and organize their time. It describes additional components of job of a manager as maintaining informal networks, developing people skills and use of power. They emphasize that managerial activity is high on oral communication.

Organizations choose strategies and erect mechanisms of structure and process to pursue these strategies (Miles and Snow et. al., 1978). Four broad strategy types pursued by organizations are Defenders, Prospectors, Analyzers, and Reactors.

'Defenders' have narrow and stable product domains and cost efficient single core technology. They have low product variety, have centralized control and tendency towards high vertical integration. 'Prospectors' seek to maintain their reputation as an innovator in product and market development. They focus on multiple technologies and have low division of labour, low formalization, complex co-ordination mechanism, decentralized control and high product variety. 'Analyzer' in an organization is one which attempts to minimize risk while maximizing profit--i.e., an Analyzer combines the strength of both Prospector and Defender. 'Reactors' exhibits a pattern of adjustment to the environment that is both inconsistent and unstable; this type lacks a set of response mechanisms which can be consistently put into effect when faced with a challenging environment. Reactors pursue a "residual" strategy, arising when one of the other three strategies is improperly pursued.

In this work we seek to measure the influence of ERP implementation in an organization on the following parameters of organization structure as identified by Pugh et. al. (1968): standardization, specialization, centralization, formalization and complexity of workflow. Also we intend to measure influence of ERP implementation on the following dimensions of manager's job (Wilson (1999) and Barnard (1966)) : use of power, delegation, privileged information sharing, inter personal skills (people skills), autonomy, and strategy formulation and strategy implementation. We also study the impact of ERP on flexibility of the organization.

3. DATA COLLECTION

For finding out effect on these parameters a relevant questionnaire was prepared with the help from available literature. The questionnaire on organization structure was borrowed from Pugh et. al. (1968) and suitably modified. The scale on autonomy was borrowed from Cook et. al. Items of scale on power were borrowed from Heller et. al. (1977). Other scales were prepared by us.

This study was conducted in three plants (P, J &L) of a large automobile manufacturing organization of India. This organization has implemented SAP as ERP solution at all its locations and started working on SAP in year 1998-99. This survey was done during December 2004--January 2005. So at the time of study the organization six years of experience in using ERP system.

Questionnaire was used to collect data from the managers. Only top, middle, and lower level managers filled up the questionnaire. Managers were asked to give rating before ERP scenario and after ERP scenario for all the questions. Managers were selected from the following areas as these were significantly influenced with ERP implementation: Finance, Production, Logistics, and Planning. Other criterion applied to managers was that they should have had experience with both the pre and post ERP implementation eras of the organization. Breakup of respondents at all the locations in different Management cadres (Senior, Middle, and Junior) is given in Table 1.

During the time of ERP implementation, the organization experienced changes in its strategy and it became a 'Prospector' after it was a 'Defender' for a long time (Miles & Snow et. al., 1978). This is supported by a document of the company given in appendix 1. Document was submitted by the company to an audit agency for getting business excellence award. This goes on to show that the firm has chosen to become a 'Prospector' since 1999. Till 1996 it was a single product company mainly making one model only.

3.1 Reliability Test For Scales

Cronbach's Alpha is calculated for assessing the reliability of the different scales used in Questionnaire. Cronbach's alpha values obtained are given in Table 2. The values of Cronbach's alpha are good enough to permit us to draw meaningful conclusion from the study.

Appendix 2 and 3 summarize the impact of ERP implementation on various parameters. Wherever we get clear consistent result across all levels of managers we give a consolidated overall result and otherwise we report the detailed results across all the three levels of managers. The results show the average of before (B ERP) and after (A ERP) ERP ratings, t-value for the difference between means and level of confidence at which this difference is significant (* for 90%, ** for 95%, and *** for 99%).

4. RESULTS AND DISCUSSION

We find that the use of power goes up significantly across all three levels of managers. We find that the delegation and autonomy also goes up across all three levels of managers. Need for people skills comes down with the lower level managers. Middle level managers are filled with more privileged information. These results are deduced from appendix 2. We find from appendix 3 that specialization, formalization and standardization goes up significantly after ERP implementation. It is found that centralization (there is more decentralization) has come down and complexity of work flow has gone up.

It was found that average percentage of the time managers spend in implementation work (chasing people, data acquisition etc.) has reduced for all management levels across all locations. Plant L experiences highest change which averages 51% reduction. In plant P & J average reduction is 31% and 38% respectively. Across management levels this reduction is around 37% for junior and middle levels and 45% for senior level.

It was found that average percentage of time spent on planning activities or strategy formulation, giving guidance to sub-ordinates etc. has increased for all management levels across all locations. Senior and middle management level experience major improvement in this. 85% respondents says that ERP has led to better co-ordination in terms of accessing information, resources, people etc. to a large certain. Same results we found regarding ERP led to better information integration.

Nearly 64% managers opined that ERP has changed the ways they used to do work to a large certain and 32% feel that they are affected to some extent only. 54% managers said that ERP has resulted in impact on the culture and goal setting in the organization to a large certain and 43% says that this impact is to some extent. 63% managers said that ERP has changed the ways they serve their customers to a large certain and 30% says that this change is to some extent. With ERP implementation average decrease in order to ship time after ERP implementation is 36%. The questionnaire revealed that the flexibility of the organization had increased substantially.

4.1 Discussion

As complexity of workflow has increased and centralization has come down, it leads to conclusion that the company has become a 'Prospector' in the terminology of Miles and Snow et. al. (1978) (see section on literature review in this paper).

Miles and Snow et. al. hypothesize that "Prospectors" would have low centralization. This has indeed happed. With decentralization, delegation also has gone up (another consistent finding from data). With increased decentralization and delegation, autonomy has also gone up (which is again a consistent finding from the data).

According to Miles and Snow et. al. "Prospectors" would have low specialization, standardization and formalization. But all these (specialization, standardization and formalization) have actually gone up. Porter (Porter, 2002) has said that "As a result IT has been a force for standardizing activities and spreading competitive convergence." Due to the discipline of software, IT and its hardware on another area of specialization has been added. With ERP implementation all the data available at one place leads to increased formalization. Thus the data obtained seems to verify the following hypothesis.

Hypothesis 1 : ERP implementation would lead to increases specialization, formalization and increased use of standard processes.

Fredrickson (Fredrickson, 1986) has hypothesized that formalization threatens professional autonomy (Perrow, 1972). However we do not find support to this here. Here autonomy has gone up and this could be due to increased delegation and decentralization which has come about due to change in firm's strategic position: "Prospector". This suggests a model which is given below.

[ILLUSTRATION OMITTED]

Link 1 indicates effect of Strategic position and link2 corresponds to ERP implementation (via increase in formalization, specialization and standardization) and their influence on organizational structure & manager's job.

During the same period when ERP was being implemented, the organization also added up in their product variety (Model base and their varieties), so it was important for the top management to give sufficient autonomy to the local management of different sites so that they can take decisions and manage as per the environment prevalent at that location. This is also reflected by different work culture at different locations. So effects of Link 1 appear to be stronger than effects of link2 in this case.

4.2 A Theoretical Prediction

If the company were a 'defender', then there would be higher centralization, formalization & standardization (Miles & Snow et. al., 1978) as a result autonomy to its managers would be less and ERP implementation with its attendant formalization & standardization would further erode autonomy (Fredrickson, 1986) and (Perrow, 1972). Hence we have following hypothesis:

Hypothesis 2: If a 'Defender' implements ERP then it is likely that autonomy would be further eroded. This may be verified by a future study.

Organization has maintained a sense of balance in the use of power and granting autonomy to its managers. Increased autonomy (as found empirically in our data) is likely to lead to managers taking different directions. Top management through the use of increased power may have attempted to integrate the diverse decisions of different managers. Also increased power use may have facilitated strategic change from 'Defender' to 'Prospector' (Hardy, 1996) and also to facilitate 'change management' resulting due to ERP implementation. With increased power the management tends to become 'task oriented' than 'human relations oriented' (Kumar, 2002)).

5. CONCLUSIONS

This study focused on the changes in manager's job and organizational structure with ERP implementation. We analyzed the data collected on these parameters for the differences in means of before and after ERP scenarios and found changes in manager's job for the organization chosen. We found use of power increased significantly with ERP implementation. This could be to facilitate the change process. This is consistent with all management levels. Change in need for maintaining informal relations was not that profound and had shown effect for lower level only where this has decreased. Managers at the lowest levels had felt reduction in need to maintain informal relations as ERP is implemented in the organization.

We found that Flexibility of the organization has increased with ERP. Executives are spending less time in implementation and the freed time is employed more in planning activities. We found that standardization, specialization and formalization have increased due to ERP implementation.

We have presented one hypothesis related to 'Defender' implementing ERP system and this could be which may be verified by a future study.

APPENDIX 1

Today the organization has 2000+ supplier base supplying 40000+ parts/ aggregates, design, manufacture and delivery of over 1,60,000 vehicles per year comprising over 130 active models and providing service to over 30 lakh vehicles with varying emission norms in different part of the country.

Following figure shows no. of models and variants are going up every year. The average production per day has more than doubled in last five years time. Also in the same time span almost each and every product line has undergone major improvements which have benefited the customer in big way, such as EX series in all segments, all versions of buses, MAVs, Sumo facelift, etc.

[ILLUSTRATION OMITTED]

The organization has expanded in all sectors with product offerings spanning Medium and Heavy Commercial Vehicles (M&HCV), Light Commercial Vehicles (LCV), Multi-Utility Vehicles (MUV), ICV, MCV and LCV buses and Passenger Cars.

* Structural changes in the CV industry

-New emerging segments adding complexity along with small volumes

-Lower overall margins and continuing cyclicality

-Following the global path of evolution, but the need to catch up much faster

* Customer and Market

-Discerning and well-informed customer profile

-Numerous players, resulting in a highly competitive market

-Greater movement of core products such as steel and cement

APPENDIX 2
Overall Comparison on Use of Power

   B ERP        A ERP        t - Value

P  2.509        2.880         5.459 ***
J  2.336        3.115        10.560 ***
L  2.333        2.851         7.180 ***

Overall Comparison on Delegation

   B ERP        A ERP        t - Value

P  2.463        2.741        2.676 ***
J  2.485        2.894        3.791 ***
L  2.560        2.964        4.091 ***

Overall Comparison on Autonomy

   B ERP        A ERP        t - Value

P  2.240        2.412        4.253 ***
J  2.442        2.900        7.504 ***
L  2.563        2.737        3.344 ***

Results for People Skills

                  SENIOR

   B ERP        A ERP        t Value

P  3.000        3.000        Not Cal
J  2.857        3.000        1.000
L  3.000        3.000        Not Cal

                  MIDDLE

   B ERP        A ERP        t Value

P  2.556        2.444        -0.426
J  3.000        3.000        -0.000
L  2.538        2.692         0.433

                  LOWER

   B ERP        A ERP        t Value

P  3.333        2.667        -1.348
J  2.833        2.500        -1.581 *
L  2.667        2.083        -2.244 **

Results for Privileged Information

                  SENIOR

   B ERP        A ERP        t Value

P  2.500        2.500        Not Cal
J  1.857        2.429        2.828 **
L  2.333        2.667        1.000

                  MIDDLE

   B ERP        A ERP        t Value

P  1.778        2.111        2.000 **
J  2.000        2.778        2.135 **
L  2.077        2.615        2.007 **

                  LOWER

   B ERP        A ERP        T Value

P  2.000        2.429        1.162
J  2.400        2.600        0.535
L  2.250        2.583        0.886

APPENDIX 3

Results for Standardization

                  SENIOR

   B ERP        A ERP        t Value

P  3.000        6.000        Not Cal
J  3.000        5.000        2.928 **
L  3.667        5.000        2.000 *

                  MIDDLE

   B ERP        A ERP        t Value

P  4.125        5.000        1.825 *
J  3.111        4.556        4.914 ***
L  3.000        4.923        6.218 ***

                  LOWER

   B ERP        A ERP        t Value

P  2.429        4.000        4.260 ***
J  3.000        4.000        1.936 *
L  3.250        4.583        2.464 **

Overall Comparision for Specialization

   B ERP        A ERP        t Value

P  1.673        1.865        3.120 ***
J  1.526        1.789        3.832 ***
L  1.471        1.803        5.530 ***

Overall Comparision for Centralization

   B ERP        A ERP        t Value

P  4.420        4.328        -2.149 **
J  4.380        4.186        -4.535 ***
L  4.470        4.271        -5.618 ***

Overall Comparision for Formalization

   B ERP        A ERP        t - Value

P  4.920        5.640        5.368 ***
J  4.421        5.000        4.726 ***
L  3.936        5.551        7.817 ***

Overall Comparision on Complexity of Workflow

   B ERP        A ERP        t Value

P  4.576        5.106        4.261 ***
J  4.763        4.974        3.203 ***
L  3.688        5.086        7.225 ***

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RRK Sharma, Indian Institute of Technology, Kanpur, INDIA

Rajesh Chaudhary, Indian Institute of Technology, Kanpur, INDIA

TABLE 1. PLANT WISE BREAKUP OF RESPONDENTS
IN VARIOUS MANAGEMENT LEVELS

Plant                 Management Level

            Senior        Middle        Junior

P              2             9             7
J              7             9             6
L              3            13            12

TABLE 2

                             Cronbach Alpha
Parameters                       Value

Power                            0.6896
Autonomy                         0.8163
Delegation                       0.7375
Standardization                  0.7243
Specialization                   0.7296
Centralization                   0.5062
Formalization                    0.8403
Complexity of work flow          0.7117

              High     Common Client          Multiple Client
                     Multiple Processes     Multiple Processes
Flexibility
              Low      Common Client          Multiple Client
                      "Best Practices"    Mostly "Best Practices"
                            High                    Low

                               Centralization

RELATING STRATEGIC POSITION AND DIMENSIONS OF ORGANIZATIONAL STRUCTURE

Objectives of            Dimensions of organization
Manufacturing decision   structure

                         Specialization               Low
                         Standardization              Low
High Product Variety     Formalization                Low
(Prospector)             Centralization               Low
                         Complexity of Workflow       High

                         Specialization               High
Low Product Variety      Standardization              High
(Defender)               Formalization                High
                         Centralization               High
                         Complexity of Workflow       Low