The Electronic Journal on Information Systems in Developing Countries, http://www.ejisdc.org

Potential Impact of Cultural Differences on Enterprise Resource Planning (ERP) Projects

Walter Skok

Kingston University, UK

wskok@kingston.ac.uk

Hartmut Döringer

Ludwigshafen University of Applied Sciences, Germany

hdoeringer@online.de

Abstract

Over the last ten years, there has been a dramatic growth in the acquisition of Enterprise

Resource Planning (ERP) systems, where the market leader is the German company, SAP

AG. However, more recently, there has been an increase in reported ERP failures, suggesting

that the implementation issues are not just technical, but encompass wider behavioral factors.

This conceptual paper examines the role of culture in the implementation of process-oriented

ERP systems, and reports on the formulation of a research project to examine the relevance of

macro and micro-level cultural issues in the successful operation of such systems.

The paper suggests that some of the reported ERP problems may be attributed to the

difficulties that staff operating in an Anglo-Saxon culture may experience with a process

rather than function-oriented working environment.

1 What is culture?

1.1 Literature Review

In his review of the many definitions of the concept of culture, Olie (1995) concludes that

most authors agree on the following characteristics:

· culture is not a characteristic of individuals, but of a collection of individuals who share

common values, beliefs, ideas etc. These collections may include family, occupational,

regional or national groups;

· culture is learned. People learn the culture of a group when they become a member;

· culture has a historical dimension. A particular nation’s culture develops over time and

is partly the product of that nation’s history, its demographic and economic

development, its geography and its ecological environment.

· culture has different layers. Hofstede (1991) distinguishes four different layers of

culture i.e. symbols, heroes, rituals and values

Sorge (1995) compared organizational structures of manufacturing sites that were similar in

size and technology use in the United Kingdom (UK), Germany (D) and France (F). Table 1

summarizes a number of quantitative measures describing the shape of the organizations.

The conclusions were:

German sites came across as having very ‘lean’ and simple structures, the hierarchy being

strong but short. There is a tendency to restrict the growth of any component that is separate

from direct production and the line of authority.

French organizations tended to have tall hierarchies with large numbers of people in

managerial, supervisory, administrative and specialist positions.

British companies tended to have medium-sized components on most counts, except that they

had the smallest numbers of people specifically classified as having line authority.

Hampden-Turner and Trompenaars (2000) have identified six dimensions of cultural

diversity, with the first being: Universalism – Particularism. The difference is summarised as:

Universalism searches for sameness and similarity and tries to impose on all members of a

class or universe the laws of their commonality.

Particularism searches for differences, for unique and exceptional forms of distinction that

render phenomena incomparable and of matchless quality.

They go on to discuss culture clashes and derivative conflicts in business and industry by

emphasizing the differences between the schools of scientific management (Taylor, 1947) and

human relations (Roethlisberger and Dickson, 1939) and state:

While scientific management is now discredited, “operations research” and more ominously

“re-engineering” have taken their toll on human relations in the workplace.

In their view, Universalism – Particularism elucidates the two contrasting strategies of

developing core competence and getting close to the customer.

The literature on culture provides a set of general concepts and ideas as a way of looking at

the world. However, the typologies of culture have inherent weaknesses e.g. they do not

reflect the variety of values and attitudes that may exist in a country, nor do they explain how

cultures have developed over time. These limitations will need to be borne in mind, as we

consider potential cultural impact on the use of information systems, particularly enterprise

resource planning systems.

2 What are Enterprise Resource Planning (ERP) systems?

2.1 ERP Systems: Background

Enterprise Resource Planning (ERP) systems may be defined as the implementation of

standard software modules for core business processes, usually combined with bespoke

customization for competitive differentiation. For many organisations, such development

may begin with a single pilot project, or within a single business function. However, potential

for extension to corporate-wide and/or global integration remains a key factor of an ERP

implementation. This may be achieved via a Business Process Re-engineering (BPR)

exercise, which can be viewed as the prologue to the implementation of the project.

Commercial off-the-shelf software has been available since the 1960s, with companies

preferring to buy rather than build their information systems in order to minimize the risks

historically associated with bespoke development. However, an ERP system is more than the

use of stand-alone pre-written software. It is a change management initiative, which

encompasses a review of business processes across the whole organisation, requiring careful

management of the associated human factors.

The last ten years have seen a dramatic growth in the use of ERP systems, particularly by

world-class organizations eager to develop an international information systems strategy. The

market leading ERP vendor is the German company SAP AG, who offer their latest

mysap.com (former R/3 system), encompassing enterprise integration of information systems

as well as e-commerce operations.

Key drivers in this trend can be summarized as:

· Globalisation of business;

· Legacy systems and Year 2000 system concerns;

· Increasing national and international regulatory environment e.g. European Monetary

Union;

· BPR and the current focus on standardisation of processes e.g. ISO9000;

· Scaleable and flexible emerging client/server infrastructures;

· Trend for collaboration among software vendors;

· Trend to E-Business.

ERP is often viewed as a different paradigm for information systems development, because

of the following differentiating factors:

· The integration of business functions;

· The management of change and political issues associated with BPR projects;

· The number and variety of stakeholders in any implementation project;

· The high cost of implementation and consultancy;

· The consequent configuration of software representing core processes;

· The enhanced training and familiarisation requirement.

Historically, packaged software was seen to fulfil specific functional roles in an organisation,

while ERP systems, consisting of standard multi-functional, multi-language, multi-legislative

software modules, offer process integration across an entire organisation. This important

distinction between a function and process view of an organisation’s structure is shown in

Davenport (2000) argues that companies are doing more than installing a computer system

with ERP projects, but are in fact, changing the way the company is organised and often

acting against the prevailing company culture. Ezingeard and Chandler-Wilde (1999) found

few examples that involve ERP systems as a source of business advantage. In fact, there have

been some notable reported failures e.g. Dell Computers, Dow Chemicals, Fox-Meyer and

Mobil (Davenport, 1998). The problems with the SAP R/3 project at Fox-Meyer has led to

bankruptcy and litigation proceedings (James, 1997). A Gartner group survey (Hunter, 1999)

was carried out in 1300 European and American companies and found that 32% of ERP

projects were delivered late.

2.2 ERP Systems: Function vs. Process Perspectives

Standard software for business applications was first introduced in the 1970s, commencing

with financial and personnel applications, followed by sales, order processing, MRP and

MRP II. The main aim of these software products was to support business applications in a

functionally oriented organisation. The result was the growth of functional islands of

information, with functional rather than process optimisation. Hence, from a process

perspective, organisations had to operate at sub-optimal levels within these information

islands.

Attempts to avoid this sub-optimal situation and to come closer to an overall optimum,

started in Germany with the introduction of firstly, an Integrationsmodell (Grochla, 1968;

Grochla, 1969) and much later, Computer Integrated Manufacturing (CIM) (Scheer, 1987).

These developments had a highly mechanistic focus to information processing. So it was no

accident that the first integrated software package (SAP R/2) for business applications (later

to be designated as ERP) was developed by a German software company around1980.

The real breakthrough in process oriented thinking in IT was initiated by Hammer and

Champy (1993) who focussed on IT support for business processes. The result was the

increased use of integrated systems like SAP’s R/3, which facilitated real-time support of

complete business processes e.g. from the arrival of a customer order to the dispatching of the

final goods (Appelrath and Ritter, 2000).

The complex process of implementing standard software can generally be viewed as the

collection of activities necessary to enable an organisation to use the software in an effective

manner (Kirchmer, 1998: p25). The software must therefore become an integral part of the

enterprise and the corresponding changes that arise. A business process oriented

implementation is a step-by-step introduction of complete business processes that are

supported by the software, regardless of the functional structure of the organisation and

perhaps of the software itself (Kirchmer, 1998: p30). Therefore, business process oriented

implementation facilitates optimisation of the business processes, regardless of the design

paradigm of the software, and becomes an integral part of process oriented information

management (Kirchmer, 1998: p31).

3 Discussion

Recently, there have been a number of reported success stories for the implementation of

process oriented ERP systems in Germany (e.g. Fink, 1999; Dischinger, 1998), more so than

in the UK, where more and more problematic implementations are coming to light. Skok and

Legge (2001) reviewed six European organisations that had implemented or were

implementing ERP systems and found that people are not always prepared to accept standard

processes. Although, there was more likely to be an acceptance of authority and standard

processes in Germany, compared with the British propensity to work around processes

wherever possible. Hence a picture begins to be built up, indicating that process oriented

information systems may be closer to the Germanic culture than to the Anglo Saxon one. This

section attempts to analyse these cultural differences and make recommendations for further

research into this problem area.

3.1 Cultural Differences: Universalism vs. Particularism

Hampden-Turner and Trompenaars (2000) outline a common polarisation that reflects

Universalism vs. Particularism and that is the distinction between global corporations,

typically centralised on their home country, and multinational corporations, with highly

decentralised business units particular to their local cultures.

The buy vs. build approach to information systems development may therefore be seen within

this context. ERP systems (i.e. the buy approach) may be viewed as those designed with the

global corporation in mind, by adopting the universalist culture, with its focus on core

competence, low cost strategies and mass production. Bespoke system development (i.e. the

build approach) can then be seen as a particularist approach, with its focus on meeting

specific customer needs and adopting premium strategies.

3.2 Cultural and Business Process Changes

There are well known difficulties encountered in the management of major change

programmes, relating to corporate culture and business process change. However, the

combined effects of cultural and process changes in ERP projects can produce serious

detrimental effects on staff attitudes. Consider Figure 1 which showed the BPR and ERP

inspired transition from a function oriented to a process oriented view.

The authors believe that one of the reasons for ERP problems lies in the fact that staff are

more likely to be uncomfortable with the process perspective, as it does not provide the

familiarity and togetherness of working in a traditional functional departmental environment.

This feature together with the rigid standardisation applied to processes must be carefully

addressed when planning ERP projects.

3.3 Function vs. Process View: Human Responses

A number of possible positive and negative reactions from staff operating within the two

modes are shown below (see Table 2)

Reasons for these differences may be due to the inherent nature of the functional and process

views. For example, the function view is well defined with staff understanding their

individual role within a specific function, that is normally the basis of a department in which

they work. In such an environment, operational factors are more likely to be quantifiable e.g.

production variables, skills requirements etc. On the other hand, the enterprise wide view

provided by the process perspective is less quantifiable, as there are corresponding

difficulties in measuring productivity and business benefits. Also, staff are more likely to

require a set of hybrid skills, which are necessary to operate in an uncertain environment

(Skok and Hackney, 1999). These are the skills that are notoriously difficult to acquire.

4 Recommendations for Future Research

The increased reporting of problems with ERP projects and the work on the impact of

cultural differences in multi-national organisations led the authors to investigate the extent to

which ERP projects may be affected by cultural differences. The planned investigation would

EJISDC (2001) 7, 5, 1-8

be based around primary and secondary data sources for projects using the German based

SAP R/3 system. The hypothesis to be tested will be that a process oriented information

architecture would be more suitable to the Germanic rather than Anglo culture. The study

would also identify the effects of these differences on staff working with these systems.

4.1 Macro vs. Micro Level Perspectives

For the purposes of this study, culture is viewed at two levels:

4.1.1 Macro Level

Here, it is necessary to consider the differences at a national level, in this case, between the

UK and Germany. The differentiating characteristics will include: organisational structures,

functional and process oriented views, supervisory control mechanisms etc.

4.1.2 Micro Level

Here, the considerations will be at the individual level and will include: human responses to

organisational change, cultural acceptability of different organisational structures etc.

4.2 Proposed Study

At the macro level, a set of questionnaires will identify whether companies are operating

within functional or process organisational structures, both in the UK and Germany. At the

micro level, individual users of ERP systems will be asked to rate their personal job

satisfaction.

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