By yiming luo 07/01/2008
ABSTRACT
Successful implementations of large-scale IS (Information System) are crucial for sustaining and enhancing the competitive position of enterprises. However, these large-scale IS implementations are often complex and time-consuming. In last decade, due to resistance of new systems and not perfect relationship between business integration and systems integration, many IS implementations effects fail to meet stakeholders’ expectations and project deadline even with huge numbers of investments. Organizations realized that alignment between business and IT strategies is an important part of IS implementations. By using Mckinsey 7S Framework and taking both successful ERP system implementation in Cisco and failure IS implementation in BP Chemical as examples, the paper aims to demonstrate the difficulties of large-scale IS implementations.
Introduction
Last several yeas spawned various innovations on both business and technology side, such as business process reengineering, supply chain management, XML language and client-server computing (Markus, 2000). Those innovations create numerous opportunities for organizations to gain more profits by changing the way of doing business though IS implementations. According to Hawking and Stein (2003), the implementation of large scale IS software is a very important issue facing businesses. However, example of successful implementations is rare.
Literary Review
There are four principles are shown below to measure whether a IS implementation is success or not:
1. Whether make the expected return on investment in the promised time.
2. Whether the implementation start in time.
3. Whether run over budget by unconscionable variances.
4. Whether generate problem in production.
According to this principle, industry statistics show that over 60% of ERP system (Enterprise resource planning) implementation starts historically fail. The reasons of this issue are vary. Trepper (1999) suggests that if a project team did not possess the required business, interpersonal and technical skills then the project implementation is hard to success. In the meantime, Maxwell (1999) proposes that there are several factors might to cause the failure of the implementation. Some factors can be attributed to the complexity of large scale IS systems, others can be attributed to the management change which will cause confusion, resistance and redundancies. A further factor is that some organizations ignore the internal politics surrounding a large-scale implementation. As result of these factors like poor project management issues, poor contingency planning and cultural issues, many IS implementations incur a significant cost and time overrun.
By reviewing the recent cases of IS implementation failures, organizations recognized that in order to successfully achieve the goal of IS implementations, they not only need to connect electronically different divisions and further to automate the order processing procedures, but also need to redesign business processes and change the structure of the organization.
Both business strategy and IT are more and more equally important to many organizations. The senior managers should understand IT discussion, meanwhile the technologist should learn to speak the business language and manage the enterprise. For example, business teams, on one hand, create enterprise strategy and assign business unit objectives. Then they discuss with IT team in order to look for technology enablement at a cost and level of service that achieve those objectives. On the other hand, IT teams create and deliver services and technologies for the business processes. However, because it is very hard to measure whether those services and technologies achieve business goals without using business acknowledges. So, the IT members must know some business word to measure and assert the value of IT to the business. For example, they need to reduce cost to make sure the financial security of IT and show IT investments are increasing the business value.
Deep Analysis
In order to make the reasons of Large-scale IS implementations difficulty more clear, it is better to combine the theory with practice case to analyze this issue. Thus, the Mckinsey 7S Framework and two different cases have been chosen. In this section, through analyze the relationship between each element, to show the reasons why large-scale IS system implementations always seen as tough job for the organizations.
Mckinsey 7S Framework
According Peters and Waterman (1982), for an organization to perform well, there are seven aspects of an organization that need to harmonize with each other. So, if an organization wants to implement Large-scale IS system in order to align business with IT strategies, they should pay more attention to all the aspects of 7S model. The components of 7S Framework are shown below.
Figure 1: The Mckinsey 7S
The seven interdependent elements can be divided into two groups: Hard and soft. Structure, Strategy and Systems belong to former group, in contrast, Skill, Style, Staff and Shared values are part of Soft group:
Strategy: the plan or course leading organization to build competitive advantage and achieve identified goals.
Structure: the way the organization is structured and its interconnections.
Systems: the routine activities and procedures, including the way of information moving around the organization.
Shared Values: the key concept that an organization imbues in its inside.
Style: the style and characterization of key manager behave.
Staff: the person and their capabilities, such as academics and technicians.
Skills: the actual capabilities and competencies of the person working for the organization.
Case analysis
The analysis depending on two cases, which consist of a very successful IS implementation from Cisco and an unsuccessful implementation from BP Chemicals. Analysis shows what kind of barriers the organizations are supposed to encounter when they try to align the business with Information Technology, and illustrates the methods that the organizations try to overcome these barriers.
One of the two cases, Cisco try to use ERP system, which is one of the largest areas of information system (IS) implementation in small, medium-sized and large-scale organizations, and always be used for enterprise integration. The Ciscos’ ERP system implementation started at June 2, 1994 and went live at January 30,1995. It very short time compared with time of BP Chemicals CSP (Commercial System) implementation, which continued from mid-1984 to 1987. The process of Ciscos’s IS implementation seem to be more successful than the process of BP Chemicals. Because BP Chemicals IS project incurred a significant cost and time overrun, by contrast Cisco completed the project in time with reasonable cost, gained a competitive advantage and increased stockholder value. Table 1 shows that the products revenue and market share of Cisco in 1999 (Four yeas after the ERP implementation):
Table 1: Cisco’s Internet products Revenues and Market Share (1999)
Products Revenues Market Share
Shared Hubs and LAN Switches $4,800,000,000 1st in market;
41% market share
WAN Switches $873,000,000 3rd in market;
22% market share
Remote Access $1,100,000,000 1st in market;
21% market share
High-end Routers $2,000,000,000 1st in market;
88% market share
Mid-range Routers $1,400,000,000 1st in market;
80% market share
Low-end Routers $1,800,000,000 1st in market;
72% market share
In order to show the reasons why is difficult to use IS system in organizations, this section will compare the main different between the two companies’ Implementation process. The comparison, based on 7S model, will summary the main differences between two companies IS implementation in terms of strategy, structure, systems, style, shared values, staff and skill. By separately analyze each component of 7S model, we can have a view the relationship between each other when organization align business with Information Technology. Thus the explanation of difficulties can be generated. Table 2 summaries the main difference between two organizations.
Table 2: Differences between two companies.
Factor BP Chemicals CSP implementation Cisco ERP implementation
Strategy
Not clear vision,
Reactive,
Directionless.
Clear vision of future direction,
Well-developed action plan
Alert to influence of external factors
Structure
Confusion duties of each person,
Poor Communications,
Conflicting targets
Clear understanding of purpose and functions,
Flexibility,
Well communicated
Systems
Linear system develop
Standardization,
Appropriate system application
Style
Sub-cultures and work independently,
Different approaches to results and customer experiences
Commitment to sharing and co-operation,
Open and honest communication,
Buy-in at all levels
Shared values
Internal conflict,
Unproductive competition,
Lack of sharing
Collaboration,
Common culture,
People working in a supportive fashion
Staff
Business-oriented,
No plan to develop everyone
Appropriate processes for employee selection,
Right people in right position,
Commitment to sharing and cooperation
Skill
Lack experience of project management
High-quality project management
Strategy: Needs of Clear Plan, Adequate Requirements and Reasonable Expectation
There was a belief within Cisco that consistency of strategy, goal, organization, and management provided a strong stabilizing benefit to a fast-growing and fast-moving company. Cisco’s CEO Chambers believed that if he could successfully execute on the four-point plan, Cisco would be the lead architect and provider of technologies for the new Internet-based infrastructure.
1. Assemble a broad product line so Cisco can serve as one-step shopping for business networks.
2. Systematize acquisitions as an efficient business process. (Cisco made more than 70 acquisitions and key strategic alliances since 1993 to fill out its product line).
3. Set industry-wide software standards for networking. IOS (Internetwork Operating System)
4. Pick the right strategic partners. (Worked with Microsoft, MCI, HP)
When Cisco noticed the old systems were on the brink of total shutdown, the CIO of Cisco Peter Solvik suggested Cisco should implement the new IS system in order to meet the needs of faster action in aspects of order entry, finance and manufacturing.
The ERP product selecting strategy was very clear as well as its plan. Because of the very clear functional requirement, Cisco can choose the most appropriate ERP package and vendor from various suppliers. One reason that Cisco chose Oracle, is the project focused on the manufacturing and Oracle had better manufacturing capability than other companies. The other reason is Cisco can get long-term development in the Oracle package.
By contrast, the CSP of BP Chemical ran over several years. This is because the performance of the CPS in terms of anticipation and planning the long-term organizational changes is very poor. From the case, before the CPS implementation, BP Chemicals is not clear about what will happen and what changes will be made. The other reason make BP Chemical implementation seems to be so difficult is the unrealistic expectation. The project team oversold the benefit of CPS to the top management, thus created the high expectations about this system in both top management and customs.
Structure: The needs of good internal communication
The structure of BP Chemical is very complex due to it consists of several subsidiaries around world and each of them has different business processes and culture. Based its own process, these subsidiaries feedback project team with several change requests that were mismanaged and had disastrous consequences on the implementation of the CPS. Different from BP, the CEO of Cisco suggested that a centralized functional structure is very important for the organization when they want to implement the large-scale IS system. The firms like BP, decentralized too quick and did not appreciate the great ability of the functional organization structure. In BP Chemical case, the project team also ignored the importance of clear and consistent communication with interest groups and the need for achieve user assistance. This is also main factor of the unrealistic expectation of the benefits.
The structure of Cisco is more suitable for IS implementation. 1993, Peter Solvik points out that, Cisco’s Information Technology department was too traditional in being viewed as a cost center reporting through the finance department, and it was too internally oriented. Because of this, the potential value of IT to the business was much smaller than it could be. So, in order to avoid the conflicts between different divisions during the ERP implementation, Solvik made some change: First of all, the IT-reporting relationship was changed from accounting to the Senior Vice President of Customer Advocacy. Secondly, the IT budget pertaining to the functions were returned to the functions, leaving just a small portion in the G&A (General and Administrative) account. Finally, central IT was disbanded and replaced with a structure whereby IT investment decisions on application project, which still executed by central IT. Meanwhile the different department’s participation was very good. From the case, the project team didn’t cost much like BP Chemical did to get the sponsorship from both the manufacturing department and finance department. With all departments’ participation, the project did very well.
Systems: Fit application software with business processes, Standardization.
With the significant development of Cisco, the old systems seems to be hard to support Cisco’s fast growth and meet the management requirements. The old system environment failed so dramatically, thus the shortcomings of the existing systems could no longer be ignored. Cisco decided to design a single integrated replacement of all the applications instead of taking a longer time to do separate projects. The replacement included ERP and web-enablement. According to Lynch (2005), corporate should make the processes that involve customers as user friendly as possible. However Cisco did more, they not only built the web application for the customers, but also built it business processes on its own global intranet, so that Cisco employees around world can exchange the information of the business issues. Noticeably, the cost ERP was just $15 million account for 13% of the total IS project implementation, the rest of money invested on those web-enablement.
Meanwhile, the Cisco IT platform architecture was standardized throughout organization. For example, 100% UNIX at the server level, 100% Windows NT at the LAN level, 100% Windows Toshiba and HP PCs ate the client level, and 100% Oracle at the database level. The standardization enabled Cisco to accomplish the complex ERP systems implementation in the short time with low cost.
By contrast, CSP didn’t notice the importance of Standardization and the project team didn’t realize the size and complexity of international IS implementation, thus they ignored to adopt prototyping and didn’t decompose the project into sub-parts. They adopt a more traditional linear way to system building, which can’t help to reduce the problem of change request at later stage of development like prototyping do. This tradition linear system development approach is not desirable for large project like IS implementation. Normally, it is very hard to predict the size, complexity and scope of large-scale IS project before actually execute it. The problem of CSP is that the project team failed to handle the size and complexity of the system, which result in time overrun.
Stuff: Inadequate Training and Education, Appropriate processes for staff selection
Another of the main causes of IS implementation failure is inadequate education and training, which are almost always underestimated. IS-related training is an important issue. James (2002) suggests that all the relevant employees must learn new system interfaces and business processes which affect the operation of the entire enterprise. The successful organizations like Cisco put extraordinary emphasis on hiring the best staff, providing them with rigorous training and mentoring support, and pushing their staff to limits in achieving professional excellence, and this forms the basis of Cisco’s strategy and competitive advantage over their competitors. Moreover, Cisco always put right people in the right position. 1988, Cisco hired John Morgridge as CEO, who is an experienced executive in the computer industry and immediately began to build a professional management team. 1991, Morgridge hired John Chamber as CEO, who continued to execute a plan. 1993, Peter Solvik joined Cisco as its new CIO, who wanted to make some change in order to address the two challenges. For the aspect of project team, it is important for the project team to have a strong mix of business and technical skill. Cisco tried the best to put very best people they could find into project.
For the BP Chemicals project, the project team paid much more attention on the business side rather than technology side. Indeed, this can help the project team to gain the commitment of board. However, project team put all technology side into external consultants, which is very dangerous. Like Cisco’s project team leader Solvik said that “We should not put Cisco’s future in the hands of a company”. Because no one understands the company like itself does. The project leader of BP Chemicals didn’t fully understand both business process and technology issue, and this lead to lots of change request from subsidiaries. According to the study, often a project manager who had reengineering experience, particularly system implementation experience and business analysis skills with the quality of a good politician should be employed. But BP didn’t choose the right in the right position. Because of this factor, the project teams mis-managed the technological implementation of the CSP, and lead to the overrun and over cost.
Skill: Needs of High-quality management,
Obviously, high-quality management should be treated as main skill in IS implementation, particularly in international implementation such as BP Chemicals CSP. From the fact that CSP was delayed by several years and ran several times over its initial budget, one thing should be put on the table. When organization faces such a large project, the rigid risk evaluation should be executed before implementation, the rigourous controls and schedule should be well planned during the implementation. The Cisco’s project management did very well and all the aspects of the project were organized well during the ERP implementation.
Style: Needs of Top management support, Open and honest communication
Jing and Qiu (2007) also point out the commitment of top management has been widely recognized, which is called as “the head engineering”. There will no investment decision and no resource to use for the project, once the project lost the support from top manager. Without commitment of resources from upper management, the ERP system is hard to achieve. In the two cases, both project teams got the continuous support from the top managers. Even though the BP Chemicals CSP without so successful plan of project, however it finally implemented. That is because the management always shows the supportive attitude for his system.
Open and honest communications are also importance to satisfy the information needs of users and to prevent the circulation of unfounded rumors. From the analysis of Structure we can also see this point. Messages must be consistent and effective two-direction communication must exist.
Shared values: Needs of Collaboration
The lack of a change management approach as part of the program can prevent a IS implementation from success. According to Hawking and Stein (2003), the resistance to organization change is quite often by a failure to build a case for change, Lack of involvement by those responsible for working with changed process, Inadequate communication, and Lack of visible top management support and commitment, and Arrogance. For the international IS implementation case like BP Chemicals CSP, with various subsidiaries, it is very difficult to get common agreement.
This comparison above, based on 7S model, has shown the main differences between two companies IS implementation in terms of strategy, structure, systems, style, shared values, staff and skill are complex. The BP Chemical CSP implementation, from the inside of organization, can tell us why the large-scale IS implementation always difficult. One the other hand, Cisco ERP implementation gives us a successful experience of IS implementation, in order to guide organization how to overcome those difficulties.
Conclusion:
Success for the business needs very close relationship between the business need and the technical solution. So, organization should pay more attention on the alignment between the business processes and technologies through IS implementations.
However, these large-scale IS implementations always seen as tough job for organizations. In order to successfully implement large-scale IS, organization should consider about all technology issues, management issue, strategy issue, and all aspects of organization (7S) alignment. Even though it’s very difficult to plan all those issues well before the actually implement. However, if organizations want to gain the competitive advantages from the IS implementations, they should try their best.
Reference:
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