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ERP Guide : ERP best practice processes and competitive advantage

Tutorial by:Gitika Pandey      Date: 2016-05-20 03:38:48

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Another important stream of criticism of ERP is directed at the effect of the second characteristic of ERP systems: the support for best practice processes. A best practice was defined in first section as a generally accepted way of working that has been adopted by many organizations and has proven its practical value.

The first important question to be asked here is what the quality of the best practice is. A best practice may be generally accepted, but is it also the optimal way of working? Many examples are available of best practices that are not optimal. Bloodletting for example, was a medieval best practice for all diseases for which no other therapy was available. Nowadays however, it is assumed that many patients died unnecessarily because of frequent bloodletting, while others passed away because of the usage of contaminated instruments used during the bloodletting [Wikipedia, 2007]. This example shows that bloodletting was a best practice, but is questionable whether it was the optimal practice for curing diseases. In the same way the question should always be asked whether a best practice offered by the

ERP system is the optimal way of working for an organization.

The second important question to be asked before the use of a best practice is the difference the best practice enables the organization to make. When every organization uses the same best practices, uniformity is created on the market, and individual companies can only distinguish themselves on the basis of price. In a uniform market where competition is based on price, profits will sooner or later become very low. The use of best practices is not recommended when this leads to a worsened competitive position.

Various authors identify downsides associated with the use of best practices. Dillard et al. [2006] see that ERP and business process redesign (or: BPR) go hand in hand. They state that in organizations that implement ERP the current processes are displaced by the best practice processes enforced by the ERP system. If large gaps exist between the existing and the enforced processes, the organization has to change dramatically. The authors are of the opinion that this dominance of the system over the organization is

a large downside of ERP.

On the basis of five case studies of ERP implementations, de Koning [2004] draws a similar conclusion.

He found that in only two of the five companies in his study the efficiency and effectiveness of business processes improved after the introduction of ERP; in the other three cases no improvements were found. In three of the cases many software modifications were required, in one case the number of software modifications was limited, and only one case required no changes to the ERP system. On the basis of these results, de Koning states that ERP was not an undivided success in his five cases. He concludes that best practices do not always lead to process improvements, and that best practices with a good functional it are not always available in the ERP system.

Davenport [1999] considers best practices both a risk and an opportunity of ERP implementations. With ERP systems, process modification is often required. ERP suppliers try to support business processes in the best possible way with best practices, which means that in the systems the supplier’s opinion of the best practice process is built, which does not necessarily concur with the organization’s opinion of the best practice process. For this reason, the organization’s management has to investigate to what extent the processes can be identical to those of competitors if the organization still wants to be competitive in the market. Davenport identifies several scenarios. Organizations that have a unique product do not erode their competitive position when they use the ERP best practices. Organizations that compete on the basis of time to market can use ERP best practices, but may have to extend the software with a reined planning module to retain their competitive advantage. Organizations that compete on costs should thoroughly investigate if the high ERP implementation costs of ERP suit their competitive approach.

In my opinion, the best practices offered by ERP systems are not usable in all cases. Extensive standardization of processes on the basis of best practices can erode an organization’s distinctive ability and competitive position. For this reason, organizations should make sharp decisions on which best practices to implement: they should use best practices offered by the ERP system for processes for which standardization will improve deficiency, and software modifications or manual procedures for those processes which distinguish the organization from its competitors.

 

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