Development of a balanced scorecard based life cycle model for ERP implementation in Hong Kong manufacturing companies

Abstract

The current business environment in Hong Kong manufacturing industry is very tough and competitive. Many companies in the manufacturing sector have implemented Enterprise Resource Planning (ERP) packages to sharpen their competitive edge but the failure rate of ERP projects has been very high in Hong Kong; according to a global survey conducted by the Panorama Consulting Group in 2008, 93% of ERP projects implemented were beyond schedule and 65% had gone over budget. Since the investment required for implementing an ERP package is quite substantial, failures of ERP systems have been known to have lead to problems as serious as organizational bankruptcy. It is, therefore, necessary to develop a new model of ERP implementation that can enhance success rate and reduce risks for the Hong Kong manufacturing companies. To develop the new model, an intensive literature review was conducted on defining ERP problems encountered during ERP implementation, ERP implementation process model and performance evaluation models, which revealed that the main reasons of failure have been lack of focus on the critical success factors and its performance evaluation at individual stages of the ERP project life cycle. To overcome these two problems, the ERP project life cycle is proposed to be divided into five distinct stages, in order to focus on applying the critical success factors at each stage of the ERP project life cycle, and incorporates the Balanced Scorecard (BSC) methodology for performance evaluation. The new model adopts BSC to closely monitor the performance of critical success factors at each stage of ERP project life cycle. There are five consecutive stages involved in the ERP project life cycle, namely, (i) organization readiness stage, focusing on the ERP readiness and project preparation; (ii) ERP selection stage, selecting the ERP package and implementation partner; (iii) ERP implementation stage, configuring the ERP system to align with user requirements; (iv) final preparation stage, finalizing the system set up before ERP going live; and (v) ERP live run stage, running the ERP system for the contributions to the company. To ensure successful implementation of an ERP project, performance at each of the above stages must satisfy certain benchmarked scale. Therefore, a Key Performance Indicators (KPIs) assessment process is to be developed and conducted for each implementation stage. If assessment results are deficient, remedial measures need to be taken followed by re-assessment of KPIs. To conduct the KPI assessment process and survey in HK manufacturing companies, a KPI questionnaire is to be developed. Together with the design of the questionnaire format and its benchmarked scale, the questions of KPIs are development through the identification of ERP problems, CSFs, KPIs from literature review and Delphi survey by ERP Experts team and HK manufacturing ERP customers. Finally, 30 critical success factors and 100 KPIs can be identified. Furthermore, the weights of individual KPIs are also determined on the basis of inputs from ten ERP experts, which are then combined by the combination technique of the Dumpster-Shafer Evidence Theory. Validation of the new model was conducted with the Structural Equation Model (SEM), after a survey of 100 HK manufacturing companies. It was observed that performances at each stage are not independent of each other; they do influence each other. To verify the feasibility of the new model, three pilot projects were conducted. These pilot projects also demonstrated the operations flow of the new model and provided a proven point of reference. Finally, the model was applied in three actual projects. The model could effectively identify problems and resolve the relevant issues at each implementation stage. For example, in all the three cases, organizational readiness was found to be inadequate, showing that HK manufacturing companies are keen on ERP implementation but tend to ignore the need for preparing themselves adequately. Eventually, all the three projects taken up with the new model were implemented on time and within budget. These ERP systems are working successfully. The model developed in this project is unique and innovative; it covers the entire process of ERP project life cycle and adopts the BSC to closely monitor the performance of CSFs, applying the Dumpster-Shafer combination methodology to determine weights of individual KPIs. The proposed new model is validated by a survey and SEM (Structural Equation Modelling) analysis, and finally, the model is tested by applying it in three real cases. However, there are limitations of the new model. The model has been developed specifically for ERP implementation in Hong Kong manufacturing companies. Future studies can extend it to other types of companies in different countries, cultures and industry segments.

Date of Award	4 Oct 2010
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Hongyi SUN (Supervisor)