Sample Accounting Dissertation (52 Pages)

| July 8, 2019

Question:

The Impact of ERP system in Management Accounting: The Case of China

Answer:

Title: The impact of Enterprise Resource planning system in management accounting: The case of china

Abstract

This study sets out to explore the impact of Enterprise Resource Planning (ERP) systems in management accounting in China. A qualitative research methodology is used to explore two company case studies. The first one is Jinan Diesel Engine Co., Ltd (JDEC), a company that has already put in place an ERP system. The second case study is that of Alcoa (China) Investment Company Limited, a company that has not yet put in place an ERP system.

Five interviewees were purposively selected from each company. In this regard, the choice of interviewees was heavily influenced by proximity to companies’ management accounting function. For each interviewee, a structured internet interview was carried out. In the case of JDEC, the five interviewees included an accountant, a HR administrator, a financial officer, an engineer, and a sales representative. In the case of Alcoa (China) Investment Company Limited, they included a financial analyst, an accountant, a marketing specialist, a HR Performance Management officer, and a sales account manager.

Research findings on the impact of ERP implementation on management accounting were presented on the basis of primary data obtained through interviews as well as secondary data gathered in the course of the study. The study derived several conclusions, among them high cost of ERP implementation, domination by ERP vendors, and incompatibility between the Chinese ERP environment and Western environment. On the whole picture, there is a high rate of failure of ERP projects. However, with regard to management accounting, many benefits have been achieved. As a result of the integration that comes with ERP implementation, management accountants are now able to participate in day-to-day strategic decision-making processes of their respective companies.

Four recommendations are made. First, Chinese ERP systems should be designed with the Chinese organizational culture in mind. Secondly, there is need for more ERP talent in the Chinese corporate environment. Thirdly, there is a need to ensure that non-specialists do not take over management accounting roles in ERP environments. Lastly, business process re-engineering (BPR) should be reoriented in Chinese enterprises in order to accommodate the changing roles of management accountants.

List of Tables

Table 1: A list of the five Jinan Diesel Engine Co., Ltd (JDEC) employees (their designations)………45

Table 2: A list of the five Alcoa (China) Investment Company Limited employees (their designations)……53

Contents

Abstract 2

List of Tables 4

Chapter 1: Introduction. 7

1.1 Background to the study. 7

1.2 Research aims and objectives 10

1.3 Research questions 10

1.4 Structure of research. 10

1.5 Statement of the problem.. 11

Chapter 2: Literature review.. 13

2.1 Introduction. 13

2.2 ERP implementation. 13

2.2.1 The functionality of ERP. 15

2.2.2 The success factors of ERP. 17

2.2.3 The failure factors of ERP. 20

2.2.4 The benefits of ERP. 21

2.2.5 The limitations of ERP. 23

2.3 Management accounting. 24

2.4 Management accounting based on ERP system.. 25

2.5 The environment of using ERP in China: The development and performance of ERP in China. 27

2.5.1 Overall performance of Chinese ERP system.. 29

2.5.2 The differences between ERP in China and in Western countries 29

2.6 The management accounting based on ERP system of Chinese enterprises 30

2.7 Summary. 32

Chapter 3: Methodology. 34

3.1 Introduction. 34

3.2 Research Method: The Case study of JDEC and Alcoa (China) Investment Company Limited. 34

3.3 Justification for internet interviews 36

3.4. Justification for qualitative methodology. 37

3.5 Summary. 38

Chapter 4: Data Analysis and Findings 40

4.1. Case of Jinan Diesel Engine Co., Ltd (JDEC): Company background and findings from interviews with five employees 40

4.1.1. Background of Jinan Diesel Engine Co., Ltd. (JDEC) 40

4.1.2 ERP Implementation process at JDEC. 42

4.1.3 Reasons for ERP implementation: Findings from five interviews 45

4.1.4 The implementation process 46

4.1.5 Benefits of an ERP system: impact on the individual and the organization. 48

4.1.6 Impact of the JDEC’s ERP system on management accounting. 49

4.1.7 Benefits of the ERP system to management accounting. 50

4.2 Case of Alcoa China: Company background and findings from interviews with five employees 51

4.2.1 Background of Alcoa China. 51

4.2.2 Findings obtained from the five employees interviewed. 53

4.2.3 The management accounting system situation at Alcoa China: Limitations and the need for an ERP system.. 53

Chapter 5: Conclusions and Recommendations 56

5.1 Conclusions 56

5.2 Recommendations 61

References 62

Appendices 67

Interview 1 Transcript – Company with an ERP system: (Jinan Diesel Engine Co., Ltd -JDEC) 67

Interview 2 Transcript – Company without ERP: Alcoa China Investment Company Limited. 75

Chapter 1: Introduction

1.1 Background to the study

In the advent of the era of information and communication technology, competition has increased exponentially, thereby forcing companies to respond to technological changes in order to maintain their competitiveness. Some of these changes are being undertaken at the level of management accounting. One of the ways in which these changes are being undertaken is through enterprise resource planning (ERP) systems.

According to Light (2001, p. 419), ERP is an accounting-oriented, multi-module, relational-database-based, and highly integrated software system used to identify the resource and planning needs of a business. ERP is an excellent source of a single user interface that an entire organization can utilize in the management of product planning, inventory control, logistics, distribution, order tracking, capacity utilization, production scheduling, and planning for resources. Another term used for ERP is enterprise requirement planning.

Today, ERP systems have become advantageous in the context of the contemporary business environment. This is mainly because they reduce cycle times as well as lower operating costs. It can also be argued that they increase the satisfaction of customers. These benefits are best appreciated when ERP is evaluation in relation to the alternative conventional information systems. Another way of appreciating the value of ERP systems is to assess the future that they hold as far as influence in the world of business is concerned.

The ERP phenomenon is not new in the corporate world and in scholarly circles. There are many articles, books, websites and many other sources of literature that discuss, promote, or critique the use of ERP systems. Many enterprises have started embracing the benefits that come with the adoption of ERP systems. This has led to an increase in the rate at which ERP systems are being installed in various companies. Whereas some companies have succeeded in reaping the benefits of ERP systems, others have run into difficulties and sometimes even failure.

In China, for example, some scholars use the term ‘near-escape’ in reference to the effects of ERP implementation in different companies operating in the country (Austin 2003, p. 84). One of the areas to which these discussions have been directed is management accounting. In this area, the issues addressed range from theory of ERP to its adoption methodology. In simple terms, ERP is viewed simply as a method of improving the management practice within the enterprise.

In terms of origin, the ERP concept was first coined by Gartner Group Inc. as a set of clearly stipulated standards for use in different enterprise managerial systems (Liu, S, 2009, p. 3). The managerial basis of this concept was Manufacturing Resources Planning (MRP II), an improvement in the supply-chain approach to management. In terms of progress, the first major change to MRP II appears to have occurred in the 1980s. The improvements made to MRP II were aimed at dealing with managerial problems inherent in many companies. Such problems included the lack of compatibility and openness in the technology used and lack of service and technical support.

In China, problems of this nature made academics and ERP experts to coin the term ‘three one third’ (Liu 2009, p. 4). This term was used to mean that one third of these systems are usable in China; another one-third can only become usable after undergoing modifications, and the other one-third is totally unusable (Liu 2009, p.5).

During the early and mid-1990s, the adoption of ERP started bringing in quite impressive results (Martinsons, 1997, p. 221). Although success in practical realms proved critics of ERP wrong, there was still a major challenge of over-reliance on foreign software providers in many countries, including China. The market changed a great deal, thus translating into a serious to those who were used to the traditional methods and styles.

From the late 1990s to date, ERP has been playing an increasingly imperative role in both management accounting and in other areas with the corporate world (O’Leary 2004, p. 67). Many improvements have been done to the existing ERP systems, thereby enhancing their effectiveness. Within this increased effectiveness in mind, it is true to say that ERP adoption is reaching the maturity stage, particularly for a country like China, which is undergoing rapid development of the economy.

With regard to the role of ERP adoption in China’s economy, it is imperative to focus on the widespread implementation of ERP systems across the country’s highly modernized economy. The main areas of adoption are the financial and information industries. As the trend towards adoption continues to gather pace, the demand for software solutions that are applicable in multiple industries continues to rise (Loizos 1998, p. 36).

As ERP adoption and implementation processes continue to gather pace, one of the main problems encountered is failure to re-engineer their business processes in light of the demands of ERP implementation (Poston & Grabski 2001, p. 284). For example, in companies where computer applications are not being used to replace manual work, only a few functionalities of contemporary ERP can be effectively performed. Another major problem in China has to do with the maturity of ERP systems. The supply side of the ERP market is yet to reach the maturity, such that it is rather easy to come across a situation where some irresponsible ERP vendors sell their systems without taking the time to assess their suitability for the customers’ enterprises.

1.2 Research aims and objectives

  1. To examine the performance of ERP system in china.
  2. To examine the impact of ERP in management accounting in the case of china.
  3. To what extent ERP system benefit Chinese management accounting.
  4. To determine whether all the Chinese enterprises use ERP-based systems in the field of management accounting.

1.3 Research questions

  1. What is the level of success in ERP performance in China?
  2. What are the impacts of ERP in management accounting in the case of china?
  3. To what extent is the ERP system of benefit to management accounting in China?
  4. What is the management accounting system situation with regard to the adoption of ERP systems?

1.4 Structure of research

This dissertation contains five chapters. Chapter 1 is an introduction to the topic of study. A background to the problem under investigation is presented; research aims and objectives are listed, as well as research questions and overall structure. The chapter ends with a section on statement of the problem.

Chapter 2 is a literature review, and issues discussed here include ERP implementation, management accounting based on ERPs, and the environment of using ERP systems in China. A comparison is also made between ERP in China and in Western countries. Under ERP implementation, the specific areas explored include functionality, success factors, failure factors, and limitations. A summary is provided for this chapter.

Chapter three is methodology, which offers a highlight on the methodological framework for the study. The research method is explained; in this case it is a case study method, which is based on qualitative internet interviews of employees from two Chinese companies, one with an ERP system and another one without. A justification for internet interviews as well as qualitative methodology is provided. A summary for the entire chapter is also provided.

Chapter 4 is Data analysis and findings. Here, research findings are presented on the basis of primary data obtained through interviews as well as secondary data. The analysis of findings revolves around two companies whose employees were interviewed: JDEC and Alcoa (China). For JDEC, some of the issues addressed include the company’s ERP implementation process, benefits of the process, impact of ERP on management accounting, and reasons for ERP implementation.

The last chapter is conclusions and recommendations. In this chapter, the findings obtained in previous chapters form the basis for conclusions and several recommendations.

1.5 Statement of the problem

The concept of ERP was created in order to transform the way business is done in a positive way. In the world of management accounting, there are many benefits arising from ERP adoption and implementation. However, there are some subtle challenges to be addressed as well. The case of the Chinese management accounting is a particularly interesting area of analysis as far as ERP is concerned. This is largely because of the rapid rate of economic development that is taking place there.

Obviously, not every company that adopts ERP systems derives benefits (Stedman 1998, p. 2). Furthermore, the benefits forecasted by experts do not end up being actualized. It is imperative that the impact of ERP is explored in greater detail, particularly with regard to different factors such as the level of adoption, ERP functionality, critical success factors, critical failure factors, and the ideal environment for the ERP implementation in the world of management accounting. This dissertation sets out to address these problems with close reference to the case study of Chinese companies. This explains the rationale for basing the case study on two different companies: one with an ERP system in place and another one without.

Chapter 2: Literature review

2.1 Introduction

This chapter is an analysis of scholarly discourse on ERP. The areas explored include various aspects of ERP implementation, management accounting based on ERP system, and environment of ERP use in China. The aspects of ERP implementation analyzed include ERP functionality, success factors, failure factors, benefits, and limitations of ERP. The different aspects of environment of ERP use in China include ERP development and performance, the performance of ERP system in the Chinese context, and differences between ERP systems in China and in Western countries.

2.2 ERP implementation

ERP implementation brings about massive changes that should be carefully managed if the benefits of any ERP solution are to be obtained. There are critical issues that always must be put into consideration in order for the implementation to be carried out effectively. Some of these issues include commitment from the top management, integration of ERP with all the other information systems within the business setting, and recruitment and management of employees and consultants. All these critical factors point to the need for a strong drive towards the alignment between organizational and technical imperatives on the basis of principles of business process orientation.

There are many perspectives that can be used in ERP implementation, and one of them is the knowledge transfer perspective. To understand this perspective well, it is important that ERP application is first understood as an enterprise-wide package with the ability to provide tight integration of all the necessary functions of a business into a single system. This single system is always made possible through the existence of a shared database. In the implementation process, the software package provides a basic architecture for use in transferring knowledge that is of relevance to the adopting organization.

From the knowledge transfer perspective, one can get a better understanding of the implementation process of standardized businesses processes within an organization. The perspective also makes it possible for companies to focus on competitive advantage when undertaking their day-to-day business activities. However, conflicts are bound to emerge between the existing organization knowledge and the business knowledge that is to be transferred from the new ERP package.

In a study done by Abdinnour-Helm, Lengnick-Hall, & Lengnick-Hall, 2003, p. 261) on ERP implementation using the knowledge transfer perspective, the results showed that businesses processes that are incorporated into an ERP package tend to be transferred into the target organization alongside the business rules that are inherent in all the processes. This is largely because of process automation, cross-functional nature of the ERP packages, and the limited level of flexibility of the packages (Abdinnour-Helm, Lengnick-Hall, & Lengnick-Hall, 2003, p. 262). The research results also gave the impression that the adaptive capability of an organization regarding the redistribution of roles and responsibility influence the ability by an organization to internalize various standardized processes and transform into routines that guarantee competitive advantage (Abdinnour-Helm, Lengnick-Hall, & Lengnick-Hall, 2003, p. 264). This net effect was also seen to be contributed to by the introduction of different knowledge structures as well as a continued development of new categories of required knowledge (Abdinnour-Helm, Lengnick-Hall, & Lengnick-Hall, 2003, p. 265).

               2.2.1 The functionality of ERP

It is one thing to have an ERP system being operational in a company and it is an entirely different thing to have it functioning as the implementers intended. Different companies hope to use different characteristics of enterprise resource planning systems. Some of these characteristics, which cut across all ERP systems, include interdependent relationships, functional coverage, standard rules of processing and management, and a single database (Amrani 2008, p. 25). All of these characteristics can bring about varying degrees of functionality within a company.

ERP functionality is also influenced the extent to which a company is prepared for the new system. In this regard, preparedness takes the form of process re-engineering and organizational vision. Other factors include specific engineering-related developments and implementation strategy. With regard to implementation strategy, it is necessary to focus on issues of speed of the process and functional coverage. Moreover, there is the issue of perceiving the company from a cross-functional perspective. In this case, cross-functionality has a lot to do with a global perspective, particularly with the scope of change that can be brought about by technology within the company.

It is imperative that the issue of functional coverage is discussed from a theoretical perspective in ERP literature. Current literature on cross-functionality tends to put most emphasis on the extent to which processes take precedence over functions. However, this need not be the case all the time, particularly considering that most ERP systems emphasize on horizontal structures that are partition-free. Such structures ideally lead to the establishment of multifunctional working teams.

In organizations where there is cross-functionality, information conventionally flows between functions and services in such a way that hierarchical channels are not put into consideration. In this case, activities are not structured according to skill- or task-based logic as the basis of job functions; rather, the logic used is that of the final objectives, which are ultimately customer-oriented.

The nature of ERP systems is such that the element of cross-functionality is necessary as an organizational approach. This is indeed the sort of functionality that pushes organizations into seeking ERP systems. The presupposition, though, is that there is a clearly defined organizational vision in place within which the functionality of an ERP system is to be achieved.

Through a clearly outlined organization vision, the appropriate changes that are to be spearheaded through an ERP system can be achieved. Ideally, the functional coverage should be wide enough to cover all the functions and departments of the company. In such case, the ERP project tends to be of strategic importance and contributes to profound organizational change. at that stage, the inevitability of change becomes clear, such that the company’s strategists have no other option but to embark on the task of process re-engineering in order to maximize the benefits that come with integration.

However, the wide extent of functionality comes with immense risks, key among them being the high number of people involved and increased interdependence between the different modules selected. This makes the ERP project a risky undertaking, both organizationally and technically. The other scenario is one where the ERP system selected is to be used to accomplish a number of support functions that are related to standard processes. In this case, strategic considerations may become secondary and the company may end up having a narrower scope of the future.

In essence, the different forms of interdependence that are nurtured in ERP systems encourage the use of functions that cut across different departments within a company. The net impact of this characteristic is that the user is pushed out of his functional silo so that he can carry out his duties in a manner that is in line with the extent of the ERP system coverage.

Nevertheless, the challenge of matching the functionality of an ERP system to customer requirements should not be overlooked. This is one area where major problems continue to arise. Any properly engineered ERP system clearly postulates requirements that can be elicited abstractly from ERP documentation as guidelines for ensuring system functionality. From this abstract documentation, it is possible to pick out those requirements, which, after adoption, match the features of the ERP system. Such requirements are included in the installation process. This matching process can be accomplished using what Al-Mashari (2003a, p. 46) refers to as a map representation system.

2.2.2 The success factors of ERP

Whereas some ERP projects end up being successful, others fail miserably. For many companies in the modern world, ERP systems are effective tools for use in making the best use of information technology. The trickiest bit, though, is the fact that each instance of ERP implementation involves the use of large, highly complex projects in which large groups of people have to participate and other numerous resources mobilized for success to be achieved (Bradford 2003, p. 219). Moreover, the people have to operate under immense time pressure, in contexts where unforeseen developments may arise.

The high rate of failure of ERP projects may be a key pointer to failure by companies to fail to pay attention to the key success factors of ERP systems. This entails an in-depth understanding of key indicators of an imminent success or failure of an ERP project. In one of the many studies that have been done to address this issue, Wong (2010, p. 2) identified 23 critical success factors of ERP. Some of the most recurring critical factors identified in the study include the commitment and support of top management, use of principles of project management, business process re-engineering, change management culture, selection of the right team, clear goals and focus, avoidance customization, and user education and training (Wong 2010, p. 3).

The success factors that were identified as less critical include interdepartmental communication and cooperation, management structure, performance monitoring and evaluation, use of the development tools provided by the vendor, software development and troubleshooting, vendor partnership, and appropriate business and information technology legacy systems. Other factors mentioned include use of ERP project consultants, user participation, vendor package selection, integration of the entire system, appropriate expectation from the management, and technical knowledge (Wong 2010, p. 3).

This debate on critical success factors is best viewed in the context of literature on success in the development of information systems (Ehie & Madsen 2005, p. 549). In this context, one clearly notices that the issue of defining and measuring success of implementation of information systems is a thorny one. After all, the definition of the notion of success differs depending on the point of view of the person defining it. This explains why different people mean different things when they are talking about success of ERP systems or ERP success factors for that matter.

A rather helpful approach would be to assess the extent to which different ERP scholars have mentioned various critical success factors in their work. Wong (2010, p. 7) used this approach to come up with the 23 critical success factors, some of which have been listed in an earlier section of this dissertation. The critical success factors were ranked on the basis of the number of times that they had been mentioned after an in-depth analysis of 17 research studies.

With regard to ERP, success factors attract special attention since the risks and costs of this massive technology investment tend to rival its potential payoff. Indeed, failures in ERP systems have been known to cause organizational bankruptcy (Wong 2010, p. 12). Moreover, although some aspects of determining the success factors of ERP are also application in the assessment of success of information systems, some differences exist. For example, in ERP systems, tremendous difficulties have to be encountered during practical implementation. Furthermore, it is difficult to ensure that embedded tacit knowledge about business operations is transferred in an appropriate manner.

It is imperative to put various success factors in context through an analysis of various companies and the factors that led to the success of their ERP systems (Brown 2003, p. 128). For instance, in the case of Earth Grains, success was achieved mainly because there was a change compensation system whereby employees were rewarded after successful ERP implementation (Davenport, 2000). In another company, Monsanto, the main success factors included management structure, redesign of the entire business process, and external expertise (Summer, 2009).

Many other examples of successful ERP implementation exist; in each of these examples, it is easy to see a correlation between the success factors employed and the level of success achieved. In one such company, U.S Mint, the project commenced with a requirement that the employers had to see every single aspect of the implementation process that had to be coordinated (Diehl, 2000. The managers also understood that the entire project was going to be not only a painful one but also an expensive one, such that $80 million needed to be spent within a period of 7 years (Diehl, 2000).

In a different example, Ralston Purina, a company operating in the manufacturing industry, the main success factors included experienced technical consultants, strong management support, and effective user training (Sun 2005, p. 202). Another example is that of the Houston Independent School District; here, the main success factors included selection of the right implementation team and business process re-engineering (BPR) (Harreld, 2000).

2.2.3 The failure factors of ERP

Sometimes, ERP projects end up in failure, leaving ERP consultants, project team members, and other stakeholders pondering over the possible failure factors that may have contributed to the negative outcome. Some of the critical failure factors that have been identified in ERP literature include lack of project management effectiveness, poor consultant effectiveness, and poor BPR (business process re-engineering) quality.

In one study, Bradford & Florin (2003, p. 18) fourteen critical failure factors were identified with a life cycle framework being used to analyze problems associated with ERP at each stage of implementation. The most occurring failure factors included ERP system misfit, poor consultant effectiveness, high rate of turnover among project team members, and over-reliance on too much customization (Bradford & Florin 2003, p. 15). Failure factors exerting a smaller extent of influence in the study include poor support from the top management, unrealistic expectations from the top management regarding the ERP system, unclear concept of the uses of the ERP system by users, and resistance to change by users (Bradford & Florin 2003, p. 15). Other ERP failure factors appearing in the study include poor knowledge transfer, poor IT infrastructure, tit project implementation schedule, and poor quality of ERP testing (Bradford & Florin, 2003, p. 16).

Prior scholarly research has clearly shown that persistent conflicts with consultants remain one of the most glaring managerial problems at the implementation phase of ERP systems (Al-Mashari 2002, p. 364, Al-Mashari, 2003b, p. 24, Brazel, 2005, p. 622). In many cases, though, consultants have the ability to bring on board specialized skills, know-how, and experience needed by the organization (Burn 2005, p. 1098). When contracted to oversee the implementation of ERP projects, consultants can provide a new company-wide perspective as well as bring about unity between different stakeholders. However, consultants always have to contend with the reality that ERP implementation is not just about technicalities; it also includes elements of business process reengineering.

During different implementation phases, different ERP problems are encountered. The first set of problems emerges at the planning stage, and they differ remarkably from those experienced at the post-implementation stage. There is a need for these problems to be analyzed with the aim of deriving a solid theoretical framework. In the meantime, an ERP system life-cycle’ approach appears to be an excellent platform for investigating failure factors for ERP implementation.

 2.2.4 The benefits of ERP

            As integrated software solutions, ERP systems have the potential to provide many benefits to the companies to adopt them. At the core of these benefits is the element of integration. Typically, ERP systems are designed with the goal of seamless integration in mind, such that information can flow seamlessly through a company. Whenever the goal of integration is achieved, it becomes possible for activities relating to finance, accounting, supply chain, human resources, and customer information to be integrated.

ERP projects also lead to improvement in data processing speed, managerial efficiency, and merchandize turnover rate as well as an enhanced speed of feedback from customers in after-sale services. In many cases, consultants and scholars contribute greatly to the analysis of the inherent benefits of ERP implementation (1997, p. 51, Chen, 2001, p. 376). Indeed, it is out of these analyses that a distinction is made between direct and indirect benefits of ERP projects.

Direct benefits are associated with an increase in the level of improvement of efficiency in the way various functions are carried out within the company. Once there is delivery efficiency, customers become more satisfied and this leads to an increase in market share. Delivery efficiency is realized through reduction in production cost, the time employees spend waiting for raw materials, purchasing cost, producing ability, and management costs. In this regard, it is clear that two elements that are worth focusing on in the analysis of benefits of ERP systems are exploitation of resources and cost saving. In many companies, focus tends to shift towards the use of ERP systems to facilitate an increase in the level of exploitation of resources.

Some benefits of ERP systems are discernible at the level of procurement. In this case, it is easy to reach out to more vendors, produce more competitive bids, and widen participation in contracts advertised by governments. This lowers the cost of most of the products and services that are purchased from the company. The systems also lead to faster product look-up and ordering process, thereby saving all stakeholders time and money. Similarly, ordering and payment procedures are automated, meaning that the costs of payment processing are significantly lowered.

At the management/budgeting level, an ERP system leads to a reduction in the time and effort directed towards data entry and production of reports for budgets. Moreover, budget reports are analyzed more innovatively and extensively. Through Web access, directors, managers, taxpayers, and even lawmakers can real-time access and view of budget information. Another important benefit is the ease of access trend data. In other words, it becomes easy to reconstitute financial information of past years into a long-term view that is easy to analyze. This way, departments become empowered to measure the performance and results of various programs and make comparisons.

2.2.5 The limitations of ERP

Despite the numerous potential benefits of ERP systems, they also come with a number of limitations. One major limitation that appears to dominate throughout the ERP implementation process is cost. ERP systems are expensive to maintain in terms of both time and money. The systems are expensive to plan, procure, install, operate, and manage (Latamore 2000, p. 37). Once an ERP system has been established, the company has to incur high switching costs. It is for this reason that only large companies are well positioned to make the best use of the benefits offered by ERP systems. Many small and medium-sized companies tend to avoid this technology.

Every ERP system requires some training of sorts. This is because the success of the system depends entirely on the expertise and skills of the employee utilizing it. The employees have to be given continued training in order to understand all aspects of the system. The training process is expensive, and companies with the financial ability to install the technology may end up going through cost-related constraints as far as continued training of all employees is concerned. This is because the employees have to shun their day-to-day activities in order to undertake training, and the company may not afford to hire new contract-based employees to be undertaking the regular labor for the duration of time that the permanent employees will be in training.

Additionally, ERP systems require business process re-engineering (Loh 2004, p. 3439). Since they affect virtually all departments within the company, they require a drastic change in business processes. New procedures have to be put in place, employees have to be reoriented, managerial support is required, and new technical issues arise. As a result the transition to the ERP system is normally a tedious, time-consuming process. After the implementation phase has been completed, some companies may even have trouble quantifying the benefits that arose from the establishment of the ERP system.

2.3 Management accounting

Management accounting is concerned with the preparation of management accounts and reports that provide an accurate analysis of financial and statistical data that managers need to make day-to-day decisions. Unlike financial accounting, in which case annual reports are generated for external stakeholders, the aim of management accounting is to generate weekly or monthly reports for internal audiences within the organization, for example the chief executive officer and managers of various departments. The weekly and monthly reports indicate the amount of sales revenue generated, available cash, amount of orders, accounts receivable, accounts payable, raw material delivery trends, outstanding debts, inventory, variance analysis, and trend charts (Zhang 2003, p. 416).

As professionals, management accountants have to partner with other people within the company to make decisions, manage performance, devise planning, and design performance management systems (Rhodes 2009, p. 136). They also provide financial reporting expertise in efforts to assist management formulate and implement a feasible strategy for the organization.

The management accounting field has evolved a lot since the first definition was promulgated (Yusuf & Gunasekaran 2006, p. 865). One of these changes entails a call for management accountants to move from activities relating to transaction and compliance and to corporate performance management, budgeting, and planning. Indeed, this is ultimately what management accountants have become today: champions of internal control, corporate governance processes, cost management methods, risk management, and cost management. In this new capacity, management accountants have a great role to play in steering their companies towards competitiveness and success.

2.4 Management accounting based on ERP system

One of the areas in which ERP systems are being widely used today is management accounting. In this field, ERPs are used as one of the best advanced choices as far as administrative IT solutions are concerned. However, from a practical perspective, there is not much literature on the impact of ERPs in management accounting. In instances where scholars have sought to find out these impacts, the most appropriate way is normally field studies, where focus is on different companies, particularly those with varying perspectives on the use of ERP systems (Chen 2003, p. 162).

In one such study, in which focus was on major Finnish companies, including ABB and Nokia, Granlund (2002, p. 299) found out that ERP projects have resulted in relatively few changes in the management accounting and corporate control procedures. Granlund (2002) also found out that in most cases, most of advanced techniques of management accounting as well as majority of traditional ones such as annual budgeting continue to be operated using separate systems. On a positive note, though, for many management accountants, ERP projects have in certain instances led to the creation of more time for analytical work instead of the traditional routine tasks (Granlund 2002, p. 301).

The link between ERPs and management accounting is particularly crucial because one of the benefits of ERPs is integration of systems, such that information can flow easily, making it more accessible; once this operational data is easily accessible, it is upon management accountants to convey it in a form that is managerially usable and relevant. Moreover, it is now a common practice for the logic of management accounting to become a subject of critical evaluation whenever changes are anticipated in a company’s information systems.

In the contemporary world, there is renewed interest in global discussions on the value of enhancing the capabilities of companies’ management accounting systems. In this regard, the important question is on whether ERP systems contribute to or reduce the added-value gained through management accounting systems as far as decision-making and control issues are concerned. The assumption on the possible benefits of ERPs on management accounting is derived from various claims.

One of these claims is that there is a widespread adoption of ERP systems in management accounting, yet there is little awareness on how improvements have been facilitated through these ERP implementations. Another claim is that the integration and automation that is characteristic of ERP systems drastically reduces the need for employment of management accountants to gather data, prepare financial reports, and ensure that operational procedures and standards are adhered to. In this regard, there is an abundance of documentation on the possibilities for proper control of environments in which there is integration of information. However, there is definitely a need for more field studies to be carried out on the likelihood of the increasingly-spreading ERP technologies altering the field of management accounting in its present form.

2.5 The environment of using ERP in China: The development and performance of ERP in China

In China, ERP is not a new phenomenon; there are many publications aimed at shedding light on or promoting ERP packages and software. These publicity mechanisms have been a particularly dominant feature in corporate circles since the turn of the 21st century. In the same light, many examples have been provided relating to not only companies that have successfully implemented ERP systems but also those whose implementation efforts have ended up in failure.

However, it is only prudent to say that the development of ERP in China, like in many other countries, has been a gradual phenomenon. Similarly, ERP in China emerged as an outgrowth of Manufacturing Resources Planning (MRP II) (Kalling 2003, p. 62). At the beginning of ERP adoption in the country, which dates back to the 1980s, many companies started adopting ERP systems on a partial basis. This was perhaps occasioned by the numerous management problems that were present in many companies. Some of these problems were easily demonstrable through high inventory costs, long durations of product delivery cycle, and a low level of asset utilization.

During the 1990s, China’s corporate stage experienced the first instances of positive results as a result of full ERP implementation (Laughlin 1999, p. 35). For many companies, though, foreign software providers had to be relied upon to deliver ERP solutions. The positive outcomes in ERP implementation have been contributed to largely by the development of information technology, reform and innovation, and near-complete localization of ERP systems by foreign software providers. Moreover, people have accumulated some experience, particularly in management accounting, meaning that many companies do not face the multitude of management problems they used to face during the 1980s.

With those positive results, the turn of the century heralded a new era in ERP implementation in China. Significant improvements have been made in the practice and exploration efforts with regard ERP implementation. ERP systems have been installed in many companies, and their functions have been extended considerably. However, some problems still exist, for instance, failure by some companies to integrate BPR into ERP implementation efforts. In such a situation, computer applications replace only the manual work, such that it becomes impossible for all the functionalities of various ERP systems to be fully performed. Moreover, some software providers continue to sell ERP systems without first determining their suitability to their users, an indication that the ERP market has not yet fully matured.

Just like in all other countries, there are many benefits as well as problems associated with ERP adoption and implementation in China. In terms of benefits, ERPs have improved managerial efficiency, speed of information processing, and feedback from customers in after-sale services (Scapens 2006, p. 311). Integration of management functions has resulted in a drastic reduction in the management costs incurred by different companies. The companies have been able to not only exploit resources in a more efficient manner but also save on costs.

However, lack of sufficient ERP talents is one of the main problems being experienced in China (Spathis & Constantinides 2004, p. 84). Many companies find it difficult to train professionals with a wealth of experience and a strong theoretical foundation in ERP implementation. Such talents would enable companies address the requirements and challenges of the lengthy ERP implementation process. Moreover, some companies have a warped understanding of ERPs. In such situations, the companies leave the implementation task to the ERP system provider.

Management problems also hinder ERP adoption across the country. In China, management methods are far behind those of Western counterparts, most of corporate organizational structures continue to operate in a hierarchical fashion. Moreover, most norms and policies that are typical of a market economy are yet to be put in place. All these factors tend to act as a constraint to ERP implementation.

2.5.1 Overall performance of Chinese ERP system

In literature, there are conflicting views on whether China has succeeded in ERP implementation or it has failed. Wang, (2005, p. 3917) is of the view that over the last two decades, the Chinese industry has successfully implemented ERP and MRP (Manufacturing Resource Planning) systems. Wang (2005) attributes this success to sponsored research programs that have seen Chinese academic researchers provide formidable support to the country’s ERP software industry.

On the contrary, Elmeziane (2009, p. 3) argues that the rate of successful ERP implementation in China has been low, and that many Chinese firms have not achieved the intended goals. However, Elmeziane concurs that ERP plays a critical role in Chinese contemporary enterprise management, and that it is indeed increasingly turning out to be a backbone of organizational operations. There is a need for further research on this area to determine the level of success of ERP implementation among Chinese enterprises.

2.5.2 The differences between ERP in China and in Western countries

ERP in China differs remarkably from that of Western countries. The Asian context is unique and one of the ways this unique is reflected is in the business models adopted in countries such as China. In Western countries, there is more progress with regard to ERP implementation compared to China. Elmeziane, (2009, p. 5) puts the success rate of ERP projects in Western countries at 33% while in China it is at a low of 10%. This remarkable difference between the rates of success in ERP implementation in China and Western countries translate into an urgent need for research to determine the unique context of critical success factors of the China’s ERP implementation environment.

In china, the organizational culture differs remarkably from that of Western countries. Yet in such a situation more 90% market share of the country’s ERP market has been taken up by foreign ERP packages (Wan 2005, p. 3923). On this basis, one may assume that ERP implementation failure in China has been caused by introduction of foreign ERP packages that have not been designed with the country’s unique organizational culture in mind. The differences in culture between the West and China mean that Culture is a crucial factor in determining the success of ERP projects in Chinese companies.

One particularly important element of differences in organizational culture is that while Western companies depend heavily on information in decision-making, Chinese management people rarely rely on information even in cases where information systems have been installed and implemented (Elmeziane 2009, p. 7). They tend to rely more on experience and intuition. Everyone else in the company has to wait for the top management to make the main decisions. This reduces the need for information exchange between various managers. It is in this same way that the top management tends to be reluctant to adopt systematic information obtained from the ERP system.

2.6 The management accounting based on ERP system of Chinese enterprises

ERP systems have significantly influenced the practice of management accounting in many Chinese enterprises. This is particularly the case in large companies that have fully adopted ERP systems (Jacobs 2007, p. 361). In the new ERP environments, management accountants are required to have a broad spectrum of business knowledge in addition to bringing in additional value to the business in the form of financial expertise and the process of change management (Xue 2005, p. 39).

In the ERP environment, many Chinese management accountants have now moved into the spotlight by virtue of being a more integral part of their respective companies’ management teams (Rom 2006, p. 24). In this capacity they have to use a wide range of skills, participate in the process of making decisions in the context of cross-functional teams, as well as integrate strategic and operational control. In essence, the ERP implementation process forces management accountants to broaden the scope of their functions to become strategic managers.

In a typical large Chinese company with an ERP system in place, the core activities of a management accountant now have to involve pre-close reporting at the end of the month, where an overall assessment of figures has to be carried out (Xu 2002, p. 52). Additionally, the professionals have to look at strategic ways of cutting back costs. Moreover, they have to meet with operations managers regularly instead of just sending month-end results to them. In this way, the management accountants tend to know and understand all business processes in a better manner.

However, the complexities of ERP systems have not passed unnoticed by management accountants in Chinese enterprises. This is particularly the case where there are numerous direct and indirect suppliers, all of whom have access to the company’s ERP system despite their remote location in different parts of the world. As reported by Reimers (2003, p. 21), the extent of integration is so far-reaching that on average, management accountants operating in ERP-compliant companies in China have to spend about 30% of their times using the ERP systems.

Instead of spending most of their time crunching numbers, most management accountants who work in ERP environments rededicate their efforts to the search for ways of improving business processes in order to improve productivity (Yusuf 2004, p. 56). In other words, ERP projects give management accountants the ability to spend most of their handling value-added projects. This translates into improved efficiency, worldwide integration, and speed.

2.7 Summary

In summary, there is plenty of literature on ERP implementation, both in general contexts and in the context of companies operating in China. The literature covers issues ranging from perspectives of implementation, ERP functionality, ERP success and failure factors to the benefits and limitations of ERP. In each of these aspects, different issues arise, both from practical and theoretical analyses. For instance, it is clear that ERP functionality is greatly influenced by the extent to which a company is prepared for the new system. In this regard, preparedness takes the form of process re-engineering and organizational vision.

Similarly, there is an abundance of literature on the impact of ERP on management accounting in the context of different large companies around the world. However, with regard to Chinese companies, not many scholars have undertaken empirical studies on the way management accountants are being affected by ERP systems (Davenport 2004, p. 11). On the basis of available evidence, though, it is clear that since the notion of ERP was first introduced in the country during the 1980s, the role of management accountants has been greatly transformed. Management accountants no longer spend most of their time crunching numbers to deliver monthly financial reports, like it has traditionally been the case. Rather, they are increasingly adopting the roles of managerial strategists, such that they have to coordinate more closely with operations managers in company-wide management. In other words, the increased level of corporate integration arising from ERP implementation has made management accountants understand their companies better.

Nevertheless, there are many critical success and failure factors that have been influencing the level of success in ERP implementation, particularly for management accounting (Frank 2004, p. 422). Some of these factors include commitment and support of top management, use of principles of project management, business process re-engineering, change management culture, selection of the right team, and clear goals and focus. Some of the most recurring failure factors in literature include ERP system misfit, poor consultant effectiveness, high rate of turnover among project team members, over-reliance on customization, and poor BPR (business process re-engineering) quality.

Additionally, ERP in China differs remarkably from that of Western countries. In the West, more success has been achieved compared to China. The organizational culture of China differs from that of the West. Western companies depend heavily on information in decision-making while Chinese management people rarely rely on information even in cases where information systems have been installed and implemented (Soh & Kien 2000, p. 125). In spite of this difference, more than 90% market share of the country’s ERP market has been taken up by foreign ERP software vendors. There is need for further research to be carried on the impact of differences in organization culture between the Western countries and China on the success of ERP implementation.

Chapter 3: Methodology

3.1 Introduction

3.2 Research Method: The Case study of JDEC and Alcoa (China) Investment Company Limited

The research method adopted for this study is case study. In this case, structured interviews are conducted with two Chinese companies, one with an ERP system in place, and another one without an ERP system. The company with an ERP system is Jinan Diesel Engine Co., Ltd (JDEC) while the one without an ERP system is Alcoa (China) Investment Company Limited.

The choice of Jinan Diesel Engine Co., Ltd (JDEC) was based on several considerations. One of them is that the company operates in China and it has already established an ERP system. Another reason is that the ERP implementation project was undertaken on a test-run basis under the stewardship of CNPC (China National Petroleum Corporation), the parent company. The implementation process, if successful, would be replicated in other companies affiliated to CNPC. On the other hand, Alcoa (China) Investment Company Limited was selected because the company is yet to put in place an ERP system. Alcoa (China) Investment Company Limited is a subsidiary of Alcoa, a company with operations in many other countries across the world.

Five interviewees were purposively selected from each company. An internet interview was used to reach out to the views of each of the 10 interviewees regarding enterprise resource planning systems. In the case of JDEC, the five interviewees selected include an accountant, a HR administrator, a financial officer, an engineer, and a sales representative. In the case of Alcoa (China) Investment Company Limited, the five interviewees who participated in the study include financial analyst, accountant, marketing specialist, HR Performance Management officer, and sales account manager.

The choice of the accountant and financial officer in the case of JDEC and the financial analyst and accountant in the case of Alcoa was based on the employees’ inherent exposure to management accounting. For the other interviewees, the selection was based on the presupposition that their activities in their respective companies place them in a position where they are affected by roles of management accounting, whether or not ERP systems exist in their places of work.

With a well thought-out structure, it was assumed that the researcher would be able to determine the level of interviewees’ understanding of the theme under investigation. The structure also enables the researcher make a formative assessment, for example, regarding the respondents’ feelings about a topic. In this way, a greater depth of information is obtained that would be the case if the interview was unstructured. Another particularly important benefit of the structured interview was that different interviewees were asked the same questions in the same way. Thus, it was easy for the interview to be replicated for different interviewees. The sum result was that the study easily took a standard format.

3.3 Justification for internet interviews

The interview was carried out through the internet. The interviews were recorded in audio formats, such that they could be replayed and listened to again later on. This created an element of convenience, particularly with regard to the preparation of interview transcripts. Because of geographical situation, this interview has to be process through internet.

There are many benefits associated with the use of an internet interview. One of them, according to Saunders et al. (2009, p. 45) is that it is possible to bring the interviewer and interviewee even when both of them are geographical dispersed. Moreover, an internet interview causes a relaxing feeling and is comfortable for interviewees since they approach it in the same way they approach a normal web chat. Another benefit of an internet interview is that it solves the problem of recording. As a computer application, the web chat software can help the interviewer record everything automatically, thereby removing the cost of buying an audio record tool while at the same time improving the quality of the transcription.

An internet interview that is in the form of a web chat allows the interviewer and interviewee to interact directly since each individual has his own computer on which he simply needs to type concurrently. This permits a ‘conversation’ of sorts to take place. All that is required is for the interviewer and interviewee to arrange an appropriate time to log into their respective computers and start the interview. In this kind of arrangement, there is automatic access to interview data, a higher number of participants can be accessed, and costs are significantly reduced.

Nevertheless, the interviewer has to be keen on seeking clarifications since the interviewee will not have the freedom of responding to certain questions at his leisure time. Once everything has been clarified and all the appropriate data has been obtained, the researcher can consider the internet interview a success. This is because by the time he has carried out all these tasks, he will have overcome one of the most commonly cited drawbacks of internet interview: too much demands on the interviewer’s own time.

3.4. Justification for qualitative methodology

There are many reasons why a qualitative methodology is the most appropriate for addressing the research objectives listed in the present study. One of them has to do with the level of objectivity in the responses provided by the interviewees. Typically, different interviewees are bound to have different perceptions regarding the need for ERP systems or the success of ERP implementation. A qualitative methodology provides a researcher with an excellent tool of determining trends in interviewees’ responses. These trends are quantified and made into a basis for making conclusions. Without a qualitative methodology, which in this case takes the form of structured interviews, it is impossible to draw out trends of consistency and derive conclusions.

Another justification for the qualitative methodology arises out of the fact that this is an organizational study, where the companies under analysis intended to derive certain benefits from ERP implementation. In such cases, outcomes are individualized, since each company intended to derive specific benefits upon implementing the ERP program. Such outcomes cannot be identified through a quantitative study. A qualitative interview method is the best research tool for analyzing the outcomes in their individualized contexts and deriving a conclusion within the framework of the ERP theme.

Similarly, the processes that the two companies employ in their ERP implementation efforts cannot be the same because of varying circumstances and differences in organizational goals. Owing to such differences, it would be inappropriate to design a quantitative methodology because one of the presuppositions would be the existence of a standard mode of organizational functionality. With a qualitative methodology in place, it is easy to put consideration to the circumstances of each company in isolation before making comparisons with the standard procedures specified in the ERP system.

Moreover, it would be most appropriate to compare the individual experiences of interviewees with regard to the ERP phenomenon using a qualitative perspective. Upon analysis of these experiences and outcomes, the research can make a comparison with secondary data addressing ERP implementation in each of the two companies. Out of this analysis, it is easy to come up with credible findings and conclusions. The same reason can be given if one considers the fact that ERP is a dynamic and evolving phenomenon, particularly in China.

With qualitative interviews, interviewees are able to describe only those things that are of importance to them, in their own words. When no pre-determined categories are drawn out, the participants tend to feel even more relaxed, particularly in the context of an online interview. The qualitative aspect also allows the interviewer to enquire about more details while at the same ensuring that their questions are being understood in the intended way.

3.5 Summary

Chapter 4: Data Analysis and Findings

4.1. Case of Jinan Diesel Engine Co., Ltd (JDEC): Company background and findings from interviews with five employees

4.1.1. Background of Jinan Diesel Engine Co., Ltd. (JDEC)

Jinan Diesel Engine Co., Ltd. (JDEC) is a Chinese company that came into existence in 1920. It is the only manufacturing enterprise for internal combustion engines that operates under the CNPC (China National Petroleum Corporation). Throughout the company’s history spanning over 80 years, the enterprise has accumulated tremendous experience in the area of diesel engine manufacture. For this reason, today, JDEC is able to offer top-quality diesel engines at very competitive prices.

JDEC’s products fall into four categories, namely: drilling equipment, diesel generators and engines, marine engines, and gas generator sets. As the names suggest, the products of the company are used in diverse areas ranging from locomotives, construction equipment, and generator sets to agricultural equipment and military applications. In efforts to safeguard quality, JDEC has established cooperation with different part suppliers with a global presence, including Amot of England and Miba of Germany.

The company is involved in the manufacturing and selling of diesel generators and engines not only within China but across the world. In addition to manufacturing and selling diesel generators and engines, JDEC also operates service stations through which customers can get parts and access after-sale services directly. At its inception, the company operated under the name Huafeng Machinery Factory, before changing its name to JDEC in 1953.

JDEC has already installed an ERP system with the aim being to streamline its production processes. In this undertaking JDEC benefited immensely by being selected as the company of choice in the trial efforts by CNPC. The ERP system that was successfully installed by JDEC became a key reference point for other industries affiliated to CNPC, thereby making it an excellent model.

In the ERP implementation process, JDEC recruited the services of a foreign company called Capgemini. With this assistance, JDEC was able to maximize its methods of production planning and quality tracking. It also contributed to the raising up of the level of the company’s information management practices. In this process, many economic benefits were derived.

The multidimensional nature of ERP implementation was inherent in the case of JDEC. On the one hand, the principles of ERP installation employed were hugely influence by CNPC’s values. On the other hand, Capgemini brought into the company a lot of global industrial expertise as well as localization experience. This experience enabled the company put into consideration the special characteristics of JDEC as a corporate entity.

In JDEC’s ERP program, nine key divisions and modules were put into consideration, among them cost, finance, materials, production, equipment, distribution, and quality management. Other than the standard solutions, Capgemini facilitated the design and development of a full-fledged quality tracking system. It also optimized the platform for the control of multiple product offerings. Additionally, it created a platform for purchasing activities for outside suppliers. Clearly, these solutions have clearly brought about a major improvement in JDEC’s level of management accounting while at the same time laying down a foundation for development in the future.

JDEC’s new ERP system has clearly brought about significant micro-level and macro-level changes in management thinking as well as the company’s day-to-day operations. This is clearly demonstrated in the fact that ERP is now a widely used term across the company. at the micro level, the main benefits include emphasis on task integration, reorganization of management, improvement in materials management particularly at the planning stages, and organizational-level planning. The main benefits at the macro level include avoidance of isolation of information, unified metrics, better internal controls, improved management, adequate analysis of financial and performance reports, and timely reactions.

4.1.2 ERP Implementation process at JDEC

During the implementation process, JDEC’s representatives as well as the representatives of other subsidiaries of CNPC worked in accordance with the requirements stipulated by CNPC. The requirements in this regard were all about creating successful examples, accumulating implementation experience, forming dissemination model, and finding a basis for implementation from a universal perspective. This meant, among other things, ensuring that every phase of the ERP project was completed within the scheduled time and according to plan.

The implementation team also had to keep in mind the long-term development objectives in mind while adhering to the ideals of inclusivity, unity, practicality maturity, and effectiveness. Concurrently, JDEC’s development goal had to be put into consideration. The development goal of JDEC is to become a competitive mechanization company that is founded on modern management, an in-depth understanding of the market, effective of proprietary technology, as well as research and development.

The implementation team at Capgemini had to make reference to the ideological emphasis at JDEC in efforts to make the ERP system a success. Other considerations included total cooperation and prioritization on the formation of system in the context of day-to-day activities. The key element in this process was sincere collaboration and adherence to all the values of the target company.

One of the aspects put into consideration during the pursuit of sincere collaboration and cooperation was focus on tying the ERP project to the improvement of future management. The implementing team also put into consideration the fact that the ERP project was being implemented on a trial basis, in a decentralized environment. Therefore, if successful, it would be used across the larger CNPC group.

Another aspect was maintaining universality of the solutions offered by the project. To achieve this goal, Capgemini formed a task group that would oversee total project control. The group was made up of consultants who specialize in all the eight modules mentioned earlier on in this case study. This task group undertook the roles of creating modules and optimizing them. The group received information on requirements as well as feedback in order for them to make decisions on which models were appropriate for further optimization and which ones needed to be left in their current state.

The ERP implementation project at JDEC did not simply entail the installation of an information system; it also entailed using management and control methods, new habits, and organizational processes. Considerations were put on not just conglomerate-level goals, but also the individual organizations’ daily and developmental needs. To achieve this goal, hierarchical channels of two-way communication were established.

The overall authority came from the project direction committee, with responsibility trickling down to the project management and then to individual personnel. Within this hierarchy, orders and policies were always being disseminated in a timely manner. Similarly, daily problems were being solved amicably. Through this channel, the management was able to receive feedback in a timely and efficient manner. With such a clear communication system in place, the ERP project successfully stayed on course from the beginning to the end.

The most challenging area for JDEC’s ERP project was information collection and management, and for this reason, most of the focus was directed here. The advice offered by Capgemini was that JDEC leaders that were in charge of collecting and verifying data as well as user information management need to come together and form a team. Once this team was in place and the online ERP launch was complete, personnel from every department would continue taking responsibility for the maintenance of their part of the ERP system.

When the system finally went online, monthly activities were finished smoothly. Day-to-day operations and maintenance work started taking effect. Both JDEC and Capgemini hoped that positive effects would start being experienced. The main areas where the greatest positive impact was expected include purchasing platform, production planning, and quality tracking. Improvement in these areas would no doubt lead to a rise in quality level on a daily basis.

 

4.1.3 Reasons for ERP implementation: Findings from five interviews

The list of the five interviewees is as follows:

Interviewee Designation
Interviewee 1 Accountant

 

Interviewee 2 HR administrator
Interviewee 3 Financial officer

 

Interviewee 4 Engineer

 

Interviewee 5 Sales representative

 

Table 1: A list of the five JDEC employees (their designations)

 

One of the reasons given for the implementation of the ERP system at JDEC was to create a quality tracking platform. Another aim was to integrate different divisions, including production, finance, materials, and distribution as well as to enhance quality management. JDEC managers wanted to optimize the way multiple products were being controlled while at the same time operate in the context of an excellent supply chains management platform.

The five interviewees gave many other reasons for the company’s decision to implement an ERP system. One of them is to enhance the blueprint and solutions of the company and contribute to the achievement of the goals of the CNPC, the parent company. Another reason given was the creation of a model for replication by the CNPC, the parent company. The implementation process also had something to do with the need to optimize the company’s methods of production planning, as well as to improve information management procedures and the associated economic benefits, better internal controls, and adequate analysis of reports. The company also intended to employ the new system in the improvement, facilitation and reorganization of management; improvement of task integration, and facilitation of organization-level planning. The organizational leaders also hoped to facilitate effective materials management and to ensure timely reactions to market changes.

Prior to the implementation of the ERP system, JDEC was facing various challenges with regard to the way various activities were being performed. Through the interviews, it emerged that production costs were high, and the most probable reason given by the interviewees was that existence of a minimum level of integration. As pointed out by one of the interviewees, technology use was minimal, the general operations of the company were less efficient, and each department operated on a standalone basis.

Similar views were expressed, whereby different departments were described as having employed different processes with regard to handling of information. The prior system was incompatible with contemporary technology needs, and generally, ‘the wheels of organizational progress were grinding slowly’. In effect, most activities involved labor-intensive manual procedures and processes, and it was often difficult to collect. Similarly, it was difficult for one department to access information about another department.

4.1.4 The implementation process

The interview responses revealed that the main activities involved in the implementation process at JDEC included project management, change management, package integration, data center operations, platforms and technology services and assessment of training needs. The first step was project planning followed by process analysis. The most difficult part according to the interview results was building enterprise-wide infrastructure. With this infrastructure in place, though, data center and network operations could be carried out and employees duly started receiving training on how to make the best use of ERP system.

At the beginning, the implementation process was rather difficult, but as time went the process became an integral part of JDEC’s operations. Most difficulties had to do with quality assurance reviews, policy design, assessment of organizational readiness, and business intelligence networking. There is no doubt that the implementation process was a long one; indeed, this process is not over, since many ERP-related activities, such as training on ERP system use particularly among new employees, are still ongoing.

Considering that ERP systems are a rather new phenomenon in today’s corporate, the challenge of selecting the right contractor at the beginning is one that any astute business strategist should have foreseen. Indeed, this difficulty was experienced at JDEC. The second stage entailed business process reengineering. At this stage, the ERP implementers had to ensure that the industry best practices were adhered to. After everything had been put in place, there was the challenge of training employees about ways of making the best use of the new ERP system.

In the view of one of the interviewees, the implementation process was longer than expected. However, the interviewee thought that perhaps the process appeared long because of her lack of familiarity with the many ERP-related issues, such as functional requirement analysis, and analysis of various implementation resources, key among them the software. Regarding software, it seemed that many employees did not understand various technical aspects, including software cost analysis, software demonstrations, and contract negotiations.

As it is normally the case whenever new systems are being introduced in a company, the ERP implementation process was riddled with some problems as well. First and foremost, people at the organization did not appear ready to accept change. For this reason, the change management stage was a rather problematic one. Indeed, a state of dilemma existed, whereby the ERP implementers were torn between abandoning and retaining some manual aspects of organizational processes.

Other problems mentioned during the interviews included lack of commitment from the top management, high costs of implementation, and problems with analyses of ERP software features. It emerged that sometimes, the top management has not always been steadfast in prioritizing issues relating to ERP. This led to lack of sufficient integration and failure to adhere to strict implementation deadlines.

Regarding the high costs of implementation, the main complaint was about new, hitherto unforeseen costs that had to be incurred for the implementation process to complete successfully. Regarding difficulties in software package analysis, the objective by the implementation team was to decide on the most appropriate ERP software solution. One interviewee argued that the challenge was on “finding a ‘line of best fit’ between the organizational structure and features of each ERP software package”. This view was shared by another interviewee, but the reason given related to the goal of seeking compatibility between ‘software functionality’, government’s legal requirements, and organization’s management accounting processes.

4.1.5 Benefits of an ERP system: impact on the individual and the organization

As the case study of JDEC clearly shows, ERP implementation impacts profoundly on both the individual and the organization. As one of the interviewees, an account, observed, one of the most conspicuous benefits is the elimination of standalone systems, thereby making the individual employee feel more like a core component of the organization. Another benefit cited is the streamlining or elimination of manual processes. With these changes in place, the individual is able to relate what he is doing on a daily basis with what all the other colleagues are doing.

In many respects, the benefits to the individual appear to have a lot to with integration. Another interviewee pointed out the ERP system “enabled me to have a feel of the backbone structure of the company, such that I understand JDEC’s operations better than I did before”. This view is also linked with that of integration and control of various production processes. It is on this basis that the interviewees claimed that the ERP system had made them to be better professions. This ability was reinforced through the ability to relate well with other employees, particularly on issues of detailed project planning and access to crucial company data.

4.1.6 Impact of the JDEC’s ERP system on management accounting

One of the areas where the ERP system had a far-reaching impact at JDEC is management accounting. One of these changes is that financial and operational information makes much more sense to the employees today than it did before the ERP system was put in place. On this basis, the accounting department is able to make the best decisions that are in line with the JDEC’s strategic objectives. Other changes include time spent during the collection of data, changes in the type of data collected, and changes in the time spent on the stage of data analysis.

In another respect, the ERP system is seen to have added value to management accounting. It is now easy for management accountants to access financial and non-financial information in efforts to implement strategy. Before the system was put in place, one could not be sure that the financial and non-financial information obtained was the right one. Management accounting has also changed with regard to technical aspects, which are now easier to understand even for non-accountants. After JDEC installed the ERP system, the information that management accountants used to provide for management of the entire business started becoming more accurate.

With the ERP system in place, management accountants were able to start playing a completely new role: that of change agents. In this way they contributed greatly to the success of the change management initiative. Moreover, better decisions started coming from the management accounting section of the company. This was largely because the management accountants were now able to update crucial data in different subsystems in real time.

4.1.7 Benefits of the ERP system to management accounting

All the interviewees were categorical that ERP implementation had brought about many benefits to management accounting in the company. However, there was an indication that these benefits could only be sustainable to the extent that the core responsibilities of the management accountant remained the same. Whereas the role of management accountants changed for the better, some roles had to remain the same. The best example at JDEC is that the company’s still have to be provided at the end of every month. Other beneficial changes that have occurred in management accounting include less involvement in the process of making business decisions and increased focus with regard to internal reporting.

Another interviewee pointed out that the company could continue enjoying the benefits only to the extent that there was an increase in focus on external environment, for example, benchmarking and increased focus on forward-looking analysis as opposed to historic analysis. Another concern is that failure to get the system’s full capability may lead to a cut-back on the benefits. On the other hand, it is clear that the benefits will continue to be derived to the extent that the system is not over-customized.

Indeed, a rather important reservation expressed during the interviews had to do with over-customization. Over-customization was seen to have enabled some non-management accountants the ability to take over the roles that belong to management accountants. In this regard, there is a clear risk of unprofessionalism creeping into the area of management accounting. It would be a great mistake for personnel outside the finance area to be allowed to complete accounting tasks. This may erode the benefits that have already accrued from company-wide ERP implementation.

4.2 Case of Alcoa China: Company background and findings from interviews with five employees

4.2.1 Background of Alcoa China

Alcoa was established in 1888 as an aluminum mining company based in the US. Since then, the company has grown tremendously to spread into other countries, including China. In terms of the company’s corporate prowess, Alcoa has grown to become the world’s leader in the production of both primary and fabricated aluminum. It is also the world’s largest leading company in mining bauxite as well as refining alumina. In fact, the company is credited with the invention of the aluminum industry in its modern-day form. Other than this invention, the company has contributed remarkably to the areas of automotive packaging, aerospace packaging, commercial transportation, building and construction, industrial markets, and consumer electronics.

Around the world, Alcoa has employed some 61,000 people who operate in 200 locations. Through the Alcoa Foundation, the company has given out some $38 million to various non-governmental organizations across the world for the purpose of enhancing communities improving the environment, and preparing future leaders in science- and technology-related careers.

Today, Alcoa is China’s largest multinational investor in the country’s aluminum industry. Since 1993, the company has invested some $800 million in the aluminum industry in China. Moreover, Alcoa has chosen Beijing, China as its headquarters in the Asia-Pacific region. the main trading offices and companies are situated in Beijing, Kunshan, Shanghai, Qinhuangdao, Guangzhou, Suzhou, and Hong Kong.

The main activities include manufacture and sale of aluminum sheets, automotive components, fasteners, as well as aerospace products printing, packaging, consumer electronics, commercial transportation, industrial products, and automotive markets. As at the end of 2011, Alcoa China operated 11 legal entities that had employed some 1065 people.

Alcoa China is also a member of CBCSD (China Business Council for Sustainable Development) and CAEFI (China Association of Enterprises with Foreign Investment). Additionally, the company continues work closely with vitals partners in China as well as around the world in efforts to drive all the integral aspects of Alcoa Strategy as far as China operations are concerned.

In its China website, Alcoa clearly states that it adheres to its foundational principles and values while at the same acknowledging the wide range of local corporate laws and business regulations. Some of the activities that are aimed at achieving this goal involve engagement in social responsibilities and promotion of sustainable development in China. Towards this end, Alcoa has already granted China communities some $6 million since 2004. In recognition to different accomplishments, the company has received several awards in recent times. One of them is Multinational Companies with Contribution to Public Welfare in China Award (2011). Others include China’s Top Green Company (2011) and Corporate Social Responsibility Special Award (2010).

4.2.2 Findings obtained from the five employees interviewed

Surprisingly enough, Alcoa China has not yet introduced any ERP system in its operations. This makes it quite interesting to interview the company’s employees to find out their views on different aspects of ERP. For this purpose, the Beijing location, which operates under the name “Alcoa (China) Investment Company Limited”, was selected. This location is a corporate center, which is one of the 200 locations that Alcoa operates worldwide. It deals in trading and distribution as well as regional management of resources.

The five employees interviewed are as follows:

Interviewee Designation
Interviewee 1 Financial analyst
Interviewee 2 accountant
Interviewee 3 Marketing specialist
Interviewee 4 HR Performance Management officer
Interviewee 5 Sales account manager

 

Table 2: A list of the five Alcoa (China) Investment Company Limited employees (their designations)

4.2.3 The management accounting system situation at Alcoa China: Limitations and the need for an ERP system

Management accounting at Alcoa is in an excellent condition according to most of the interviewees at Alcoa China. Nevertheless, a few limitations were pointed out, particularly regarding management of financial resources. Some interviewees felt that if tasks relating to management accounting were being carried out in a proper manner, the company would be in a better position financially.

With regard to limitations, the main concerns had to do with the way the management accounting department interacts with other departments. In this regard, sometimes deadlines fail to be met on issues touching on invoices and processing of transactions. It seems that this limitation is caused largely by lack of an integrated organizational mechanism.

Out of the five interviewees, three have heard about ERP. The level of enlightenment about the ERP system was impressively high among the three interviewees, who associated it with accounting, IT management, and supply chains management. One of the interviewees expressed confidence that “it (the ERP system) would make things easier here at Alcoa if it was introduced”.

The interviewees who supported the idea of installing an ERP system gave various reasons, including accuracy, timeliness, increased integration in supply chains operations, greater accountability, and ease of task performance. Similarly, the interviewees opposed to the use of ERP system had their reasons. One of the interviewees, for instance, argued that an ERP system can complicate operations for accountants. Another one opined that the ERP concept is too abstract, that it is not practical enough to be installed in a large organization such as Alcoa. Another reason offered is that the ERP software market has not yet reached maturity, and that no efficient technical support systems exist today.

Only two of the five interviewees offered unreserved support for the introduction of an ERP system in the management accounting section at Alcoa China. The others expressed reservations, with one of them insisting that the system is too expensive while the other saying that employees may not understand the rationale behind the use of the system. Another argument in opposition of the system was that it can create new loopholes for mismanagement of funds.

This question of the extent to which the ERP system may be helpful without consideration of high cost drew mixed reactions from the interviewees. Whereas some said that it would be helpful, others insisted that an ERP system would be more of a distraction than an asset for Alcoa China Investment Company Limited. The general feeling was that if such a system is to be introduced, this should start at the company’s headquarters in the US.

In their overall assessment of the ERP system, the interviewees were more positive than they were with regard to questions that dwelt on specifics of ERP as far as management accounting is concerned. One of the views was that it is an important element of contemporary management accounting. Another view was that it is a ‘great tool of integration’.  Yet another observation was that ‘it is an appropriate way of improving management accounting’. Two of the interviewees took the position that the best context for the use of ERP is one in which “the ERP Company contracted for the work has experience spanning many years”.

Chapter 5: Conclusions and Recommendations

5.1 Conclusions

It is clear that Enterprise Resource Planning (ERP) systems have had a far-reaching impact in China since they started being adopted in the 1980s. Their impact is particularly discernible in management accounting as the case study of Jinan Diesel Engine Co., Ltd (JDEC) shows. As the influence of ERP systems continues to permeate the Chinese corporate society, there are numerous pertinent issues relating to ERP implementation that are of great relevance, both in theory and in practice. Some of these issues include ERP functionality, critical success factors and failure factors for ERP implementation, limitations of ERPs, and the impact of ERP systems in the field of management accounting.

The functionality of ERP systems in China is influenced by many factors. From this study, it is clear that most of the ERP systems used by Chinese companies are supplied by foreign software vendors. This has been particularly problematic because China’s organizational culture differs from that of the foreign countries where the ERP packages are designed. The indication here is that serious ERP implementation problems continue to exist in China.

The study also shows a high rate of failure of ERP projects. This is an indication that many Chinese companies have failed to to pay attention to the key success factors of ERP systems. Some of these factors include interdepartmental communication and cooperation, management structure, performance monitoring and evaluation, use of the development tools provided by the vendor, and vendor partnership.

An understanding of failure factors is also important in efforts to analyze the causes of failure in ERP implementation efforts. The main failure factors that should be researched in greater detail in the context of Chinese corporate scene include system misfit, poor consultant effectiveness, high rate of turnover among project team members, and over-reliance much customization.

Different problems tend to be encountered in different implementation phases. In the analysis of these problems, an ERP system life-cycle approach provides an ideal platform for identifying all problematic areas, particularly with regard to the roles of management accountants. This approach is also ideal for identifying the various direct and indirect benefits as well as limitations of ERP projects.

A particularly crucial finding of this study concerns the centrality of management accounting in an investigation on the impact of ERP implementation in the context of China. With a properly designed and implemented ERP system, a company gets the benefit of integration. This integration impacts on the way management functions are carried out. Specifically, data flows easily, it is more accessible, and management accountants are able to convey it in a form that is managerially usable and relevant.

There is no doubt that the increasingly-spreading ERP technologies have started altering the field of management accounting in its traditional form. Many Chinese management accountants have now moved into the spotlight by virtue of being a more integral part of their respective companies’ management teams. In a typical large Chinese company with an ERP system in place, the core activities of a management accountant now have to involve pre-close reporting at the end of the month, in which case an assessment of both financial and non-financial data has to be carried out.

Management accountants are no longer restricted to crunching numbers to beat deadlines in the delivery of monthly financial reports, like it has traditionally been the case. On the contrary, they are increasingly adopting the role of managerial strategists. In this new role, they are expected to coordinate more closely with operations managers in the overall management of their company. This transformation is made possible by the increased level of corporate integration arising from ERP implementation. The net effect is that management accountants supposedly understand their companies better.

However, from a negative perspective, the case study of JDEC has shown that in ERP environments, there is a tendency by non-specialists to start adopting roles that were initially the reserve of management accountants. This is likely to erode professionalism in management accounting if the trend is not reversed in the future.

This problem may be blamed on various factors, and one of them could be lack of sufficient ERP talents in China, thereby making the level of successful implementation to be low. Another problem could be a mismatch between the organization culture of China and that of Western countries. This could not be much of a problem if most of China’s ERP packages were not being sourced from Western countries. This ERP software incompatibility has far-reaching implications on their functionality once they are introduced into Chinese companies.

Clearly, most of the management accounting problems that are faced companies attempting to implement ERP systems relate to China’s organizational culture. The organizational culture of China differs from that of Western countries. In Western countries, companies depend heavily on information in the decision-making process, while in the Chinese management context, people rarely attach a lot of value information even in cases where information systems are in place and are functioning properly (Elmeziane 2009, p. 7).

From the theoretical perspective of incongruence in organizational culture, it is easy to explain numerous failure factors, including commitment and support of top management, use of principles of project management, business process re-engineering, change management culture, ERP team selection, and clear focus on specific goals. All these factors contribute to the difficulties being experienced in efforts by many Chinese companies to undertake business process re-engineering (BPR) in order to create the appropriate environment for ERP implementation.

There are also some clearly discernible findings that can be discerned with regard to the research methodology used in the present study. The qualitative interview method has proven to be an effective framework for undertaking a case study of two companies with radically different organizational structures. The structured interviews were effective in measuring qualitative outcomes for use in the study. They were a crucial source of primary data, which was relied upon in analysis, comparison with secondary data, and ultimately, generation of findings and conclusions.

From analysis of the primary data obtained from the interviews of employees of the two companies and comparison with corresponding secondary data, several findings were derived. For instance, in the case of interviews with JDEC employees, it was clear that some of them were unaware of the ERP system. This is a clear indication of failure in the company’s ERP implementation efforts. It is impossible for an ERP system to be said to have been successfully implemented if some employees are not even aware of its existence in the first place.

Other interview findings confirm what has been found out in secondary data. For instance, interviewees both at JDEC and Alcoa pointed to the high cost of implementing ERP systems. The same case applied with regard to the benefits of ERP implementation. Employees at JDEC said that ERPs make work easier, integrate management functions, enhance managerial effectiveness, and it enables management accountants quantify results more effectively. Other benefits mentioned include enhancement of accountability among employees, and integration of management accounting functions.

On the negative side, ERPs were viewed to complicate work, to cause unnecessary formalities and procedures, as well as to instill fear of fresh ERP training. These negative sentiments are indicators of the existence of the deeply entrenched Chinese organizational culture that was mentioned earlier on in the study (Elmeziane 2009, p. 7).

On the overall, the performance of Chinese ERP system elicits a paradoxical image; that of success versus failure.  Success appears to have been achieved with regard to the impact of ERP systems with regard to improvement in management accounting. However, if one focuses on a general view of ERP implementation across the corporate spectrum, little progress is being made by Chinese companies. China continues to rely heavily on Western countries for ERP solutions, yet the country’s organizational culture differs remarkably from that of Western countries.

Moreover, the problem of high cost of ERP implementation is compounded by the fact that these systems are inherently complex. There is need for further studies to be done on the impact of these problems on the practice of management accounting. The research should particularly focus on ways of determining the net added value of ERP systems once the post-implementation stage has been reached. Nevertheless, in situations where successful implementation has been achieved, management accountants have been able to rededicate their efforts to the search for ways of improving business processes as well as handling value-added projects.

5.2 Recommendations

  1. Chinese ERP systems should be designed with the Chinese organizational culture in mind. This will increase chances of success as the new systems will be more acceptable in diverse corporate environments across the country.
  2. There is need for more ERP talent. This will reduce over-reliance on foreign ERP software vendors while at the same time reducing teething problems that normally create the tendency by some implementers to over-customize ERP packages.
  3. In the context of ERP environments, there is a need to ensure that non-specialists do not undertake management accounting roles. The obvious reason for this is to ensure that professionalism is maintained in the practice of management accounting, even in newly-introduced ERP environments.
  4. There is a need to reorient business process re-engineering (BPR) in Chinese enterprises, particularly with regard to the changing roles of management accountants. The top management teams of these enterprises ought to embrace the new practice of accounting management, which involves participation in strategic decision-making.

 

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Appendices

Interview 1 Transcript – Company with an ERP system: (Jinan Diesel Engine Co., Ltd -JDEC)

Thank you for attending this interview.  I am going to take approximately half an hour. This topic is about the impact of ERP system in management accounting: Hopefully, you can share your ideas, opinions and experiences about this topic. The context of our discussion will only be kept strictly confidential and will only be used for my research purposes in this time.

 

  1. What is your position in the company? And what are your duties?
  2. Accountant
  3. HR administrator
  4. Financial officer
  5. Engineer
  6. Sales representative

 

  1. I heard that your company installed ERP system, do you know when and why?

 

Accountant: 2006 with the aim of creating a quality tracking system.

HR administrator: 2006 reason: to integrate different divisions, including production, finance, materials, and distribution.

Financial officer: I do not remember the exact year, the aim was to enhance quality management

Engineer: 2006, JDEC managers wanted to optimize the way multiple products were being controlled.

Sales representative: 2006, why? In order to create an excellent purchasing platform.

 

  1. What were the reasons for the implementation?

 

Accountant: to enhance the blueprint and solutions of the company and enhance the achievement of the goals of the CNPC, the parent company.

HR administrator: as a model for replication by the CNPC, the parent company

Financial officer: to optimize the company’s methods of production planning, as well as to improve information management procedures and the associated economic benefits, better internal controls, adequate analysis of reports,

Engineer: to create improvement in management, to facilitate reorganization of management, improve task integration, and facilitate organization-level planning, facilitate effective materials management.

Sales representative: to facilitate timely reactions to market changes.

 

  1. How did you perform your activities before the implementation?

 

Accountant: production costs were high probably because there was minimal integration.

HR administrator: technology use was minimal; the general operations of the company were less efficient, each department operated on a standalone basis.

Financial officer: different departments employed different processes with regard to handling of information. The prior system was incompatible with contemporary technology needs, the wheels of organizational progress were grinding slowly.

Engineer: most activities involved labor-intensive manual procedures and processes, data was difficult to collect.

Sales representative: it was difficult for one department to access information about another department.

 

  1. How was the implementation process?

 

Accountant: The main activities involved included project management, change management, package integration, data center operations, platforms and technology services and assessment of training needs.

HR administrator: the first step was project planning followed by process analysis. The most difficult part was building enterprise-wide infrastructure. With this infrastructure, data center and network operations could be carried out and employees started receiving training on the use of ERP system.

Financial officer: at the start, it was difficult, but as time went the process became an integral part of JDEC’s operations. Most difficulties related to quality assurance reviews, policy design, assessment of organizational readiness, and business intelligence networking.

Engineer: the implementation process was a long one; this process is still ongoing. At the beginning, a key challenge was on selecting the right contractor. The second process entailed business process reengineering. At this stage, the implementers had to ensure that the industry best practices have been adhered to. After everything had been put in place, there was the challenge of training employees about ways of making the best use of the new ERP system. The process is ongoing by virtue of continually being operated on and serviced.

Sales representative: The implementation process was longer than I had expected. Perhaps it appeared long to me because I did not understand issues such as functional requirement analysis, analysis of various implementation resources, key among them the software. Other issues mentioned frequently by ERP implementation experts include software cost analysis, software demonstrations, and contract negotiations.

 

  1. Did you have any significant problems with the implementation?

 

Accountant: People at the organization do not appear to accept change readily. This makes the change management stage a rather problematic one. Sometimes, a state of dilemma exists with regard to either abandoning or retaining some manual aspects of organizational processes.

HR administrator:  a major problem is commitment from the top management. Sometimes, the top management has not always been steadfast in prioritizing issues relating to ERP. Other major problems include lack of sufficient integration, and strict implementation deadlines

Financial officer: High costs of implementation. I received frequent complaints regarding new, hitherto unforeseen costs that had to be incurred for the implementation process to complete successfully.

Engineer: I remember the implementation team having a difficult time trying to analyze different ERP software before deciding on the most appropriate. I guess the challenge was on finding a ‘line of best fit’ between the organizational structure and features of each ERP software package.

Sales representative: the main problems that interest me very much have to do with ERP software functionality. Finding ERP software packages that support government functionality and are suitable for the organization’s management accounting processes is a difficult undertaking.

  1. Do you realize the benefits from having an ERP system? What is the impact in your daily activities – as an individual and as an organization?

 

Accountant: Having an ERP system brings about many changes within an organization. At the same time, it impacts on the way I carry out my daily activities as an individual. The main benefit is that it leads to the elimination of standalone systems. Personally, it makes me feel more like a core component of the organization.

HR administrator: For me, the main benefit of an ERP system is that manual processes are either streamlined or eliminated. I am able to relate what I am doing on a daily basis with what all the other colleagues are doing.

Financial officer: an ERP system is definitely beneficial to me and to the entire organization in many respects. Today, I am able to have a ‘feel’ of the backbone structure of the company. I understand JDEC’s operations better than I did before. This is because ERP systems facilitate the establishment of a backbone structure on which all other operational processes are based.

Engineer: the main benefit has to do with integration and control of various production processes. I am a better professional because of the ERP system that has been introduced at ERP. Before ERP system was implemented, I was not able to relate well with other employees, particularly on issues of detailed project planning and access to crucial company data.

Sales representative: the ERP system is beneficial mainly in terms of integrating and controlling planning and budgeting processes. Before the system was implemented, I would have a difficult time figuring out the company’s budget estimates regarding a specific product offering on a daily basis.

 

  1. What is your opinion of using ERP system?

 

Accountant: I like the bit where managers are forced to under a lot of things relating to ERP system management, change management, implementation, and operations relating to ERP.

HR administrator: the ERP system is a must-have in today’s business environment.

Financial officer: rolling out an ERP system takes time but once everything is in place, it is easy to reap the benefits.

Engineer: the ERP system impacts the way JDEC undertakes all its activities.

Sales representative: it will enhance the way the supply chain management activities are carried out.

 

  1. What are differences in management accounting after your company installed ERP system?

 

Accountant: management accounting has really changed. Financial and operational information makes much more sense to me today than it did before the ERP system was put in place. On this basis, the accounting department is able to make the best decisions that are in line with the JDEC’s strategic objectives. Other changes include time spent during the collection of data, changes in the type of data collected, changes in the time spent on the stage of data analysis.

HR administrator: the ERP system has added value to management accounting. It is now easy for management accountants to access financial and non-financial information in efforts to implement strategy. Before the system was put in place, one could not be sure that the financial and non-financial information obtained was the right one.

Financial officer: technical aspects of management accounting are easier to understand even for non-accountants now that there is an ERP system in place. After JDEC installed the ERP system, the information that management accountants used to provide for management of the entire business started becoming more accurate.

Engineer: with the ERP system in place, management accountants were able to start playing a completely new role: that of change agents. In this way they contributed greatly to the success of the change management initiative.

Sales representative: better decisions started coming from the management accounting section of the company. This is largely because the management accountants were now able to update crucial data in different subsystems in real time.

 

  1. Is ERP system in your company benefiting management accounting? And to what extent?

 

Accountant: yes. To the extent that the core responsibilities of the management accountant remain the same. E.g. JDEC financials still have to be provided at the end of every month.

HR administrator: yes. This has happened through changes in different aspects, including less involvement in the process of making business decisions, and increased focus with regard to internal reporting,

Financial officer: yes. To the extent that there was an increase in focus on external environment, e.g. benchmarking, increased focus on forward-looking analysis as opposed to historic analysis.

Engineer: yes it’s beneficial, except that there are some limitations that should be urgently addressed. One of them is the failure to get its full capability. On the other hand, the benefits will continue to be derived to the extent that the system is not over-customized.

Sales representative: it is not benefiting management accounting as much as I had hoped. The main areas of concern include over-customization, which enables some non-management accountants to take over roles belonging to management accountants. ERP systems will continue benefiting management accounting to the extent that personnel outside the finance areas are not allowed to complete accounting tasks.

 

  1. What is your overall opinion with ERP system?

 

Accountant: management accounting greatly increases the likelihood of success in ERP implementation.

HR administrator: I like ERP systems because they facilitate timely access to crucial information, it brings an increase in high-quality data, and there is improvement in decision making.

Financial officer: it is a great idea. It has changed the way management accountants do their work, making them and everyone else more efficient.

Engineer: ERP is a great idea; it moulds employees into great team players and more astute professionals, particularly management accountants.

Sales representative: it has full of challenges, which can be overcome to make a great tool for use in organizational decision-making.

 

 

  1. Do you have any Suggestion about someone else appropriate to talk to?

 

Accountant : yes. The company’s chief financial analyst.

HR administrator: yes. The head of operations may be of help.

Financial officer: the company’s president is the best person to interview.

Engineer: I suggest you talk to the quality assurance manager.

Sales representative: You may try securing an interview with a representative of Capgemini, the company contracted to install the ERP system at JDEC.

 

 

Interview 2 Transcript – Company without ERP: Alcoa China Investment Company Limited.

Question 1: What is your position in the company? And what are your duties?

Financial analyst: I am a financial analyst.

The main duties include preparing corporate documents relating to the reporting of financial statements, analysis of financial variances and key performance indicators, carrying out ad-hoc reporting and analysis of various financial requirements, preparing capital expenditure schedules, and backing up shared drives

 Accountant: I am an accountant.

The main duties include: ensuring that Asia Shared Services adhere to global standards in ledger accounting, facilitating account payment transactions, monitoring location progress and updating the relevant US contacts, running, reviewing, and remediating post-closing accounting entries, processing transactions relating to account payable, efficiently and accurately sorting invoices.

Marketing specialist: I am a marketing specialist.

My duties include: Regulating databases of domestic aluminum as well as the entire alumina industry, market interaction, capture of market intelligence using various methods, providing prompt responses to various market information requests, continually updating the Asian aluminum powder database,

HR Performance Management officer: My position is that of HR Performance Management officer.

My core duties are: ensuring cordial employer-employee relations are maintained, ensuring strict adherence to company’s rules and regulations, leading in change management efforts, conducting employee performance appraisal, coordinating with all line managers, recommending the most feasible policies on employees’ performance appraisal in line with the development needs of the company.

 

Sales account manager: I am Alcoa’s Sales account manager.

I am responsible for visiting customers, fully understanding their business plans and statuses, executing sales plans (both monthly and yearly), updating sales director in market changes (market movement, competitors’ movement, and customers’ activities).

I am also responsible for contributing to supply, demand, and shipment planning, creating a link between technical support and customer service, liaising with finance department for proper credit management.

 

Question 2: What is your company’s management accounting system situation? What is the limitation? Do you think it needs to improve?

 

Financial analyst: it is excellent. Very few limitations are present; mainly relating to management of financial resources. Other than that, the company is a model in financial management.  

Accountant: no major problems exist.

Marketing specialist: We work well with the accounts department. Although sometimes we fail to meet deadlines with invoices and processing of transactions.

HR Performance Management officer: It should be improved, particularly on the area of integration.

Sales account manager: It is excellent. No major problems exist. No delays in communication whatsoever.

 

Question 3: have you heard about an ERP system? And what do you think about it?

 

Financial analyst: No; but it sounds like a great idea for ensuring integration in management accounting.

Accountant: no. I have no idea about it.

Marketing specialist: I have heard about it but I have no idea about its appropriateness here at Alcoa.

HR Performance Management officer: I know of ERP but I only associate it with IT management and accounting. It should make things easier here at Alcoa if it was introduced.

Sales account manager: I know about ERP; ERP world work wonders when integrated into a company like ours.

 

Question 4: Why do you want to use ERP system, or why don’t you want to use ERP system?

 

Financial analyst:  it can enhance accuracy and timeliness.

Accountant: It can complicate operations for accountants.

Marketing specialist: it’s a bad idea. It appears to be too abstract. It’s not practical enough.

HR Performance Management officer: ERP software market has not yet reached maturity. No efficient technical support systems exist.

Sales account manager: ERP means more integration in supply chains operations, and less work for all employees, greater accountability as well.

 

Question 5: What do you think about management accounting based on ERP system?

 

Financial analyst: it is good but expensive.

Accountant: it may fail because many people do not understand the rationale

Marketing specialist: it may create new loopholes for mismanagement of funds

HR Performance Management officer: that is what is needed at Alcoa.

Sales account manager: for a place such as this one, which is the corporate center of Alcoa in the Asian region, adoption of ERP is long overdue.

 

Question 6: Without consideration of high cost of ERP system, to what extent it may be helpful in case of your company of improve management accounting?

 

Financial analyst: it can be helpful.

Accountant: it may not help things in a large company such as Alcoa, it’s a distraction.

Marketing specialist: such an initiative should start in the home country (in the US head offices)

HR Performance Management officer: it can streamline performance appraisal and activities relating to supply chain management and IT management.

Sales account manager: it would help Alcoa become a model of proper management accounting.

 

Question 7: What is your overall opinion with ERP system?

 

Financial analyst: it is an important element of contemporary management accounting.

Accountant: I wouldn’t recommend it unless the ERP company contracted for the work has experience spanning many years.

Marketing specialist: specialized expertise is required for ERP implementation.

HR Performance Management officer: It is a great tool of integration.

Sales account manager: it is an appropriate way of improving management accounting.

 

Question 8: Do you have any Suggestion about someone else appropriate to talk to?

 

Financial analyst: the chief economist may help with more details.

Accountant: yes; the accounting manager.

Marketing specialist: the purchasing engineer may be of some great help.

HR Performance Management officer: yes; the HR Performance Management Manager.

Sales account manager: I would suggest you seek more information from company’s commercial director.

 

Thank you for your precious time!

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