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Global Journal of Human Social Science
Interdisciplinary Volume 13 Issue 1 Version 1.0 Year 2013
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-460X & Print ISSN: 0975-587X Justification of An Upgrade of An Enterprise Resource
Planning (ERP) System – The Accountant’s Role
By Sylvia Dempsey, Ruth Vance & Liam Sheehan
Cork Institute of Technology Abstract - Organisations that have already made huge investment in Enterprise Resource
Planning (ERP) systems now face the decision whether to continue maintaining the existing
systems or to invest in upgrades. This paper uses an Irish organisation which has recently
decided to upgrade its system, as its case study. Due to the expected cost, the high level of
customisation of its existing system, its lack of confidence in newer upgrades available and the
risk of business disruption, this organisation had avoided upgrading its ERP system since it was
first implemented over twelve years ago. Now the company believes that an upgrade will
enhance its competitiveness and align itself to its parent company’s system.
Keywords : upgrade of ERP system, customisation, benefits realisation, ERP decision.s.
GJHSS-H Classification : FOR Code: 150101, 150199 Justification of An Upgrade of An Enterprise Resource Planning ERPSystemThe Accountants Role
Strictly as per the compliance and regulations of : © 2013. Sylvia Dempsey, Ruth Vance & Liam Sheehan. This is a research/review paper, distributed under the terms of the
Creative Commons Attribution-Noncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/), permitting
all non commercial use, distribution, and reproduction inany medium, provided the original work is properly cited. Justification of an Upgrade of an Enterprise
Resource Planning (ERP) System – The
Accountant’s Role
investment in Enterprise Resource Planning (ERP) systems
now face the decision whether to continue maintaining the
existing systems or to invest in upgrades. This paper uses an
Irish organisation which has recently decided to upgrade its
system, as its case study. Due to the expected cost, the high
level of customisation of its existing system, its lack of
confidence in newer upgrades available and the risk of
business disruption, this organisation had avoided upgrading
its ERP system since it was first implemented over twelve
years ago. Now the company believes that an upgrade will
enhance its competitiveness and align itself to its parent
company’s system. Keywords : upgrade of ERP system, customisation,
benefits realisation, ERP decisions. O I. Introduction ver the past two decades organisations around
the world have shifted from developing in-house
information systems to purchasing integrated
enterprise resource planning (ERP) systems. An ERP
system enables an organisation to consolidate the data
from its various departments into one database. Due to
the high cost and the associated risk of implementing
an ERP system, research at the end of the twentieth
century and the beginning of the twenty-first century
focused on the implementation of ERP systems and the
critical success factors necessary for successful
implementation (for example; Davenport, 1998;
Motwani, Subramanian and Gopalakrishna, 2005; Griffin
and Dempsey, 2009; Karsak and Özogul, 2009).
Organisations are now facing the choice of continuing to
maintain the current version of their ERP systems or
upgrading to newer versions. There is a dearth of
literature in this area, most research has stopped at the
initial go-live phase, neglecting to deal with postimplementation issues (Ng, 2001; Beatty and Williams,
2006; Nah and Delgado, 2006; Olson and Zhao, 2007;
Law, Chen and Wu, 2010; Otieno, 2010). The objective
of this research is to analyse how the management
team, including the accountants, reach the decision to
upgrade the ERP System rather than continue
maintaining its existing ERP system. II. Review of the Extant Literature The activities carried out at the postimplementation phase of an ERP system can be divided
into maintenance and upgrade activities. Ng (2001)
further divides maintenance activities into vendor-led or
client-led maintenance. Vendor-led maintenance is
initiated by the ERP vendor to improve the quality of ongoing support to its clients and contain its operating
costs. For example, ERP vendors offer support
packages or patches to correct flaws or bugs to clients
who have subscribed to maintenance services (Ng,
2001; Law et al., 2010). Client-led maintenance includes
modifying the system to meet the unique needs of the
organisation and also on-going system and help-desk
support. The most popular way of categorising ERP
upgrades is either technical or functional upgrades. A
technical upgrade is the replacement of an existing ERP
application with a system using a superior technical
platform and enhanced performance, without changing
the systems functionality or degree of complexity. A
functional upgrade has a greater impact, as it offers key
business improvements and enhanced functionality.
Instead of continuing to maintain an ERP
system, if an upgrade is available, an organisation may
decide to upgrade its system (McGinnis and Huang,
2007; Olson and Zhao, 2007) and conversely, if the
available upgrade is seen as too expensive, then an
organisation may decide to continue maintaining the
existing system. The researchers created Figure 1 to
illustrate the major factors, cited by the existing
literature, which influence the decision whether or not to
perform an upgrade. Author α σ ρ : Cork Institute of Technology, Ireland.
E-mail : sylvia.dempsey@cit.ie © 2013 Global Journals Inc. (US) 17 Global Journal of Human Social Science ( H
D) Volume XIII Issue I Version I Abstract - Organisations that have already made huge Year 2013 Sylvia Dempsey α, Ruth Vance σ & Liam Sheehan ρ Justification of an Upgrade of an Enterprise Resource Planning (ERP) System – The Accountant’s Role Year 2013 Figure 1 : Factors Influencing the Decision to Perform an Upgrade ) Volume XIII Issue I Version I
Global Journal of Human Social Science (HD 2
20
18 For any organisation the primary factor against
upgrading its ERP system is the expected cost of the
upgrade. Carlino and Smith (2005) estimated that ERP
upgrades, on average, cost 80% of the initial
implementation. As well as the obvious financial costs,
the time and the massive commitment of information
technology (IT) and business resources have to be
included in calculating the expected cost of the
upgrade. If an organisation sees the estimated cost of
an upgrade as excessive, it may choose to continue
maintaining the current version (McGinnis and Huang,
2007; Olson and Zhao, 2007), which will incur annual
maintenance costs.
The escalating level/cost of maintenance
activities is one of the main factors motivating an
organisation to upgrade its ERP systems. Knowing the
amount of effort required to maintain the system allows
an organisation to make a well-informed decision as to
whether or not to upgrade. Ng (2001) shows that new
version upgrades reduce the number of enhancements
and maintenance performed by the ERP client, thus
reducing maintenance Costs. These costs should be
offset against the upgrade costs thus increasing the
chance of justifying an upgrade decision (Ng, 2001).
© 2013 Global Journals Inc. (US) Another motivating factor for organisation to
“upgrade to newer versions of their application suites”
(Beatty and Williams, 2006, p.106), is that ERP vendors
issue de-support dates, that is a date from which the
older version will not be supported (Olson and Zhao,
2007). This withdrawal of vendor support, often termed
‘vendor pull’, leads to the users losing eligibility for helpdesk support. Most companies recognise that they can’t
afford to risk running their business on unsupported
ERP software (Shepherd, 2007). If a company chooses
to support its old release by internal staff or external
consultants, maintenance costs can escalate easily.
Unless the users have the staffing ability to take total
responsibility of maintaining their ERP system
themselves, then they have to upgrade their ERP system
at this stage (Beatty and Williams, 2006).
Davenport (1998) stated that the main
justification for an ERP upgrade should be to take
advantage of new technologies, which in-turn leads to
competitive advantage. Organisations upgrade their
ERP systems in an attempt to “expand the capabilities
of their systems by integrating new modules, or addons, into their core ERP system implementations”
(Beatty and Williams, 2006, p.106). For example; new, SSC within an organisation, the benefits of having one
system throughout the entire organisation is one of the
factors that would influence an organisation towards
undertaking an upgrade of its ERP system.
From this analysis the researchers determined
that the two main factors prohibit or delaying the
undertaking of an ERP upgrade are the expected cost of
the upgrade and the existing level of customisation that
may have to be redone on the upgrade. The other four
factors act as motivators to undertaking an upgrade;
namely the soaring cost and level of maintenance on the
existing system, the withdrawal of vendor support,
benefits realisation from a more functional system and
the consolidation of resources within a large diverse
organisation.
Throughout the early 1990’s, it was assumed
that an information system (IS) would retire and be
replaced by a newer IS after an extended duration of
time (Markus and Tanis, 2000). However, as systems
became more integrated and software package costs
increased the chance of systems being replaced
became rarer. Instead they are “leveraged, upgraded,
expanded and refined, but are definitely not replaced”
(McGinnis and Huang 2007, p.627). The lifecycle model
developed by Markus and Tanis (2000) has four phases;
namely project chartering, project configuration and
rollout, shakedown and onward and upward. When
organisations undertake a major upgrade or
replacement of their existing system, they should
“recycle through the phases”, going back to the start
once implementation is complete (Markus and Tanis,
2000, p.190). McGinnis and Huang (2007) criticise
organisations that view the implementation of an ERP as
a final goal instead of a milestone. That is one of the
main reasons why “many ERP systems have been
discontinued three months to a year after they were
‘successfully’ completed” (McGinnis and Huang 2007,
p.626). Instead of an end, the post-implementation
stage should be viewed as an extension of the
implementation. For example, Motwani et al. (2005)
highlight the importance of continued support when they
include post-implementation in their three stage
framework
[pre-implementation
(setting-up),
implementation and post-implementation (evaluation)]
and also propose revising each of these stages when an
upgrade is to be undertaken. McGinnis and Huang
(2007) argue that “ERP implementation projects rarely
have a static ending point” and that “continuous
improvement activities are generally required to lengthen
the life” of ERP systems (p.626). This lifecycle view of
ERP systems requires the assumption that there will be
upgrades in the future and that they will have the effect
of starting the lifecycle over again (Law et al., 2010).
Failure to include the inevitability of another upgrade in
the planning of the implementation of this upgrade will
result in “dire consequences” (Law et al. 2010, p. 297).
© 2013 Global Journals Inc. (US) 19 Global Journal of Human Social Science ( H
D) Volume XIII Issue I Version I expanded or improved features in an upgraded version
of an ERP system may include a new HR module or a
facility for web access that was not available in the
previous version. The term “benefits realisation”, in the
context of ERP systems, means achieving more
capabilities and business values from a newer version of
the Company’s ERP system.
Early literature stated that if an ERP system was
highly customised, the organisation may be inclined to
postpone an upgrade, as all that customisation may
have to be redone on the new version (Davenport,
1998). During an upgrade, dealing with previous
customisations can require up to 80% of software
developers’ and 66% of a business analysts’ time and
effort (Beatty and Williams, 2006). Even though ERP
consultants and researchers continually advise that
unless customisation is adequately justified at the
strategic level, it should be the last choices for adopting
organisations, organisations still insist on investing
heavily in customising their ERP systems (Davenport,
1998; Holland and Light, 1999; Brehm et al., 2000; Light,
2001; Law et al., 2010). Also, as an ERP system ages it
becomes more customised, due to the addition of new
functionality by the support team requested by the
users. Beatty and Williams (2006) describe the process
of upgrading a highly customised system as “the
biggest technology headache” (p.108). On the other
hand, more recent literature states that an ERP upgrade
offers the chance for organisations to “un-customise
customisations” (Beatty and Williams, 2006, p.108).
Much of the functionality that the organisation previously
had to customise into the system may now be a generic
part of the newer version (Beatty and Williams, 2006).
This allows for a cleaner upgrade and may make it
easier to apply patches and avail of support from the
vendor in the future. Therefore, even though “overcustomisation” of the original system was seen as a
prohibitive factor to an upgrade, much of the literature
now states that even though this is still a prohibiting
factor it is no longer a critical factor.
A major benefit of ERP upgrades is that they
consolidate the resources within an organisation. It
makes sense for large companies with multiple
divisions, nationally and internationally, to consolidate as
much as possible, both to save on resources but also to
help integrate the activities of the company. One of the
modern approaches that organisations use to
consolidate resources is the use of a Shared Service
Centre (SSC). This is a unit within the organisation that
provided centralised, high quality, cost-effective
business support services to the rest of the
organisation. The hosting of the ERP system is one of
the services that a typical SSC could supply. Herbert
and Oppenheim (2004) stress that to achieve the full
potential of shared services, companies must reduce
the number and diversity of ERP systems they have
internally. Even if the ERP system is not hosted by a Year 2013 Justification of an Upgrade of an Enterprise Resource Planning (ERP) System – The Accountant’s Role Justification of an Upgrade of an Enterprise Resource Planning (ERP) System – The Accountant’s Role Literature on the subject matter of ERP
upgrades is scarce. In a recent paper, Otieno (2010)
stated that the decision to upgrade is “one of the most
neglected issues related to ERP systems” in the existing
literature (p.5). This research attempts to narrow this
gap by analysing the post-implementation process, in
particular the justification of an ERP system upgrade. Year 2013 III. ) Volume XIII Issue I Version I
Global Journal of Human Social Science (HD 2
20 Methodology Company X, a Cork-based service division of a
large multi-national organisation, wishes to remain
anonymous. The company was chosen as the case
study organisation because it is an excellent example of
a market leading company that developed and tailored
its ERP system since its initial implementation over 12
years ago, and in January 2010 commenced the
process of deciding whether to upgrade its system or
not. The researchers observed a number of key
meetings; including presentations to staff, executive
steering committee, global consulting partners and a
number of project meetings between the core project
team. They conducted unstructured and structured
interviews. The unstructured interviews involved
meetings with various people on the project throughout
the organisation. To validate the information obtained,
the researchers then conducted structured interviews
with those directly involved in the project. The
interviewees were sent a copy of the proposed interview
questions shortly before the interview. Throughout the
interviews, open-ended questions were used, allowing
the interviewees to expand beyond the facts and give
opinions about events. The structured interviews were
taped and the interviewees were sent a transcript of the
interview after it was completed.
The researchers had access to internal
documents made available by Company X, for example
tender documents, e-mails, minutes of meetings,
proposals, progress reports, presentations, and training
manuals. These provided confirmation of information
obtained from the interviews and they provided more
rounded information. The researchers in this study
acknowledge the fact that the documents were
prepared for a specific purpose rather than for the case
study. By bearing this in mind during the analysis of the
case study, the researchers were not misled by the
contents of the documents. a) The Case Study: Company X Company X utilises a highly customised J. D.
Edwards World (JDE World) ERP system to provide the
functionality required to meet its business’s financial,
manufacturing and distribution requirements. Currently,
Company X uses JDE World version 7.3 Cum 13. This
was originally implemented in 1998. There has been no
upgrade to this system since its implementation.
However by the end of 2010, Company X had justified a
major upgrade of its ERP system to Enterprise One. The
© 2013 Global Journals Inc. (US) researchers have used the following research questions
to analyse why the company did not perform an
upgrade earlier (prohibitive factors) and why the
company is now considering an upgrade (motivating
factors). 1. What were the main factors prohibiting Company X
from implementing an upgrade of its ERP system in
the last 12 years?
A high level of customisation of its ERP system
was necessary to allow Company X meet the unique
diverse needs of its customers.
“Even though we try to derive as much as we
can from the ERP, we have a large number of systems
that are integrated in to, or added onto, the ERP. Some
systems we developed ourselves, others we bought in.
Whatever we need we just add to it” (Project Manager
1/7/2010).
While contributing to the Company competitive
advantage and making it a market leader in its industry,
the high level of customisation was the factor most
prohibiting Company X from proceeding with an
upgrade of its ERP system. In recent years, Company X
was aware that it needed to upgrade its system to avail
of improved functionality and technology, but given the
level of existing customisation, it was apprehensive
about the complexity (and cost) of such an upgrade.
The management of Company X feared that all the
customisations completed over the last twelve years
would have to be redone on the new system. It didn’t
want “to start all over again, that would be a daunting
task” (Project Manager, 1/7/2010).
Another effect of the high level of customisation,
combined with the age of the system, was full
withdrawal of the ERP vendor’s support over five years
ago. Company X's IT department was left maintaining
the system itself. Paradoxically, this did not result in
increasing maintenance costs. Due to the high level of
customisation it completed over the last twelve years,
Company X’s IT department had a strong knowledge of
its system and was able to continue maintaining the
system
in-house
without
incurring
additional
maintenance costs. Maintenance costs in this case were
a deterrent to the upgrade, rather than an inducement to
upgrade as suggested in the literature.
The potential cost of, and risks involved in, an
upgrade were also major factors prohibiting an upgrade.
An upgrade of Company X’s ERP system is a
considerable investment. The Vice President of
Information Systems stated that he knew, due to the age
of the current system, that a major upgrade was “on the
cards” but “everyone was watching their own budgets
for the next quarter” and the cost of an upgrade was
“difficult to justify in the short-term” (7/9/2010). It was
finding it difficult to justify the cost of an upgrade, in
terms of money, time and business disruption, as
without an upgrade Company X had the capability to 2. What are the main factors motivating the
organisation to upgrade its ERP system? Why does
the organisation want to upgrade now?
The main motivating factor in the justification of
an upgrade of the ERP system in Company X was to
increase its competitive advantage by acquiring a more
efficient system with more functionality. Company X’s
customers would not be impressed if they knew that the
“software used was created well over thirty years ago”
(Business Analyst A, 18/8/2010). Even though the
existing ERP system is described as the core of all the
systems, the Vice President of Information Systems
stated that a lot of the work done in Company X is
outside of the ERP and then integrated in. An upgrade
would allow Company X to radically reduce the number
of existing customisations, as much of the functionality
had to be “customised into” or “added onto” the
existing system, is now part of the generic newer version
of the system.
“We have a lot of stuff that is offline on
spreadsheets which we intent to change. This could be done by an upgraded ERP system” (Vice President,
7/9/2010).
Company X sees this upgrade of its ERP
system as an opportunity to standardise its business
processes. Company X is aware that it will have to
customise the new system to some extent. This
standardisation of processes and using the generic
functionality that now exists on the newer version of the
system will reduce customisation to a minimum.
Enterprise One would have the option of eighteen new
modules to implement. Even though Company X knows
it would not implement all of these new modules
immediately, it would have the option to in the future.
The Vice President of Information Systems insisted that
this option would allow Company X to “grow and
change” when required (7/9/2010). He recognises that
Company X needs to look at the “big vision” and it has
to have the capabilities available when the opportunities
arise. Therefore the prohibitive factor of having to redo
all customisation had been downgraded substantially,
making an upgrade more appealing to Company X.
Another major motivating factor for the upgrade
was the movement towards one corporate-wide system.
Aligning with the system currently used worldwide by the
parent company would mean that Company X would
move under its parent company’s global licence thus
enabling a significant annual cost saving. This reduces
the previously articulated prohibitive factor of the high
cost of an upgrade. The parent company has found
Enterprise One to be more dependable than its
predecessor. Therefore another of the prohibiting
factors, namely lack of confidence in the newer versions
of the ERP system, is also no longer a major factor
holding Company X back from performing an upgrade
of its system.
IV. Weighing Prohibiting and
Motivating Factors All of the interviewees in this study agreed that
the upgrade was long overdue and that in the future
they would not leave an upgrade as long before action
was taken. The question is not whether or not to
upgrade, it is “when should the next upgrade take
place”. The answer is when the benefits of an upgrade
outweigh the prohibiting factors. The prohibiting and
motivating factors need to be weighed against each
other on a regular basis. This is depicted in Figure 2
(Weighing of Prohibiting and Motivating Factors in the
Upgrade Decision) below.
Some of the factors that once deferred the
undertaking of an upgrade in Company X are no longer
as prohibitive as they once were; this makes an upgrade
more appealing. Some of the factors that motivated
progression to an upgrade have become stronger,
again making the option to upgrade a more viable
“scales” to weigh -up the prohibiting and motivating
factors when deciding an appropriate upgrade date.
© 2013 Global Journals Inc. (US) 21 Global Journal of Human Social Science ( H
D) Volume XIII Issue I Version I fulfil all of its customers’ requirements. The fact that,
without an upgrade the organisation was successful
made it difficult for it to prioritise an upgrade that could
involve major business disruption.
“It’s scary for people because people are
worried that a major change in our IT infrastructure
could cause enormous business disruption” (Vice
President of Information Systems, 7/9/2010).
A combination of stable maintenance costs and
substantial upgrade costs and risks, encouraged
Company X to delay an upgrade.
Another factor delaying the undertaking of an
upgrade was Company X’s lack of confidence in the
newer versions of JDE. In 19...