Impact of Erp on Organization Performance and Management Finance Essay

The Information Technology has changed dramatically the performance of todays organizations to increase efficiency and effectiveness from last ten years. It is used all over the world through organizations from developed and developing countries to improve performance. This study examined the impact of ERP on organizational performance and management efficiency with respect to increase/decrease in income/ profit, growth rate, no of customer in bank and no of employees Vs ERP expenses of Pakistani manufacturing and banking sectors over period of 2000-2010. The secondary data was collected from literature review and financial statement of 10 companies, 05 in manufacturing sector (05 multination in local market) and 05 in banking sector(05 local). The data was tested by applying statistical/financial techniques. The conclusion of research is that ERP has positive impact on organizational performance of all the organizations but the banking sector performance outstrips the performance of manufacturing sector

Key words: Enterprise Resource Planning, Information Systems and Organization Performance

Introduction

Information systems (IS), known as enterprise resource planning (ERP) systems. ERP systems are packaged business software systems, capable of sharing common data, and accessing information in a real time. ERP applications include supply chain management (SCM), customer relationship management (CRM), product lifecycle management (PLM), E-procurement, and financial management (FM) (Barthorpe, Chien, & Shih, 2004; Tsai, Fan, Hung, and Liu, 2006; Cheng, Tsao, Tsai, and Tu, 2007). ERP systems can integrate the business processes of a company, and help organizations obtain a competitive advantage (Lee, Moon, and Lee, 2006; Ip and Chen, 2004). Companies which implement ERP systems gain many advantages, including improving productivity, gaining competitive advantage, satisfying customer demand, and increasing their rapid response capabilities. Tsai, Lin, Chen, and Hung (2007) also indicated that implementing ERP systems can bring benefits for companies, for example reducing cycle time, improving flow efficiency, and rapidly generating financial information. ERP systems enable managers to control the whole business and accelerate decision making. Companies implement ERP system to become efficient as well as integrate and modernize the business (O'Mahony and Doran, 2008)

Financial sector is the major user and large investor in use of ERP. In Pakistan banking sector is also progressing rapidly with growth of local and multinational banks (Mahmood 2006). Many local banks are working in private sectors and started their operations since 1992 (SBP Report, 2005). It was year 1965 when computer was introduced first time in banks in Pakistan. The main commercial banks in private sectors i.e Allied Bank, Muslim Commercial Bank started acquiring computer to regulate their banking work since that year (Hussain,

2003, Akhtar 2006a, 2006b). The most recent automated banking systems like Misys, Sibel and Fidility etc have been installed in many of the Pakistani Banks (Kazmi 2004, 2005; Khan, 2005; Shaukat et.al, 2009).

ERP provides many manufacturing based advantage to different organization to be the world-class manufacturer. In 1957 "Packages Ltd" was the first manufacturing company in Pakistan which introduced computers. After that many other companies started using of Enterprise Resources Planning (ERP) software (an integrated IT software system comprised of several modules that share a central database, designed to automate business process across the enterprise (Thomas and Michael, 2001)) has increased. E.R.P software packages such as SAP, Oracle etc. are being commonly used in many manufacturing industries(Rizvi, 2005; Shahid, 2005)

According to Wheelen and Hunger (2000) the organization performance is an accumulated end result of organizational process and activity. These are measured by organization's working and activity. The organizational management manages the organizational performance, control and customer value, as it impact reputation of organization. Commonly organizational work measures include organization effectiveness, productivity/efficiency and industry ranking (Wetherbe et.al.1999). Efficiency is defined as "minimum utilization of resources and getting maximum output" and effectiveness is "how well job gets done" (Robbin and Coulter, 2003).

Literature review

Huq and Martin (2006) argued that ERP is a one management strategy that creates change via process performance improvements. Subramoniam, Tounsi, and Krishnankutty (2009) examined the role of BPR in implementing ERP systems and found that all organizations which implement ERP systems should select their own approach based on organizational needs and constraints. Furthermore, Sumner (1999) examined the relationship between critical success factors (CSFs) and ERP system performance, and identified the CSFs as management support, re-design of business processes, training and re-skilling, re-design of business processes, external consultants, management structure, discipline and standardization, effective communications, maintaining excellent staffing, and avoiding attempts at software modification. Competitive pressure and systems compatibility in business process significantly explain the success of ERP system (Elbertsen and Reekum, 2008).

ERP was found to save costs (Huang et al.,2009; Kang et al., 2008; Loh et al., 2006; Wieder et al., 2006), facilitate business processes (Gattiker & Goodhue, 2005), and provide better information management (Federici, 2009). Operational aspects like lead time can also be shortened by utilizing ERP systems (Cotteleer & Bendoly, 2006; Gupta et al., 2004; Kang et al., 2008). According to Velcu (2007), faster fulfilment of customer orders can be achieved using ERP systems. Gupta et al. (2004) and Matolcsy et al. (2005) also agree that ERP systems provide more customer satisfaction by reducing time of Provide services.

In the end, it could be said that previous research suggest that a mixed result exists when analyzing the effect of IT on business performance where some studies supported a positive relation while others suggested that companies adopting ERP did not perform financially

better than non-adopting companies (Nicolaou, 2004). It can be also said that the effect of IT on business performance differs from country to country (Pilat, 2004) and should be considered when measuring business performance gains due to ERP adoption

Significance of Study

The banking and manufacturing industries of Pakistan constitute a major portion of Pakistan's economy and have experienced continuous structural and technological changes in different regimes. The manufacturing and banking industries are the major users of IT products and ERP. The both sectors i.e. manufacturing and banking have managed, to some extent, the pace with new technologies for their growth and performance increase.

This study is therefore a modest yet significant attempt to explore the importance of the role which ERP currently is playing in the organizations and its impact on organizational performance i.e efficiency "minimum utilization of resources and getting maximum output" and effectiveness "how well the job is gets done" Robbins and Coulter (2003), of Pakistani banking and manufacturing industries, over time period of 1994-2004. Various studies have been undertaken to measure the impact of ERP on organizational performance of business organizations using different performance indicators which are considered key factors. These variables include income, customer satisfaction, supplier/customer links, company image, job interest of employees, stake holders confidence and interoffice after implementation of ERP and have concluded that ERP ultimately has positive impact.

Limitations of the study

This study uses secondary data (Financial Statement 2000 to 2010) , Growth Rate, No of Employee etc of 5 Local Pakistani Banks and 5 Local Manufacturing Companies to examine the Organization performance and Management efficacy with ERP experience. Investigation only uses the limited samples to examine the relationship between Performance and ERP system.

Pakistani Banks

Name of Standard ERP

1. Allied Bank Ltd.

Unibank Swift

2. Bank Of Punjab

Unibank Swift

3. First Women Bank Ltd.

Unibank Swift

4. Muslim Commercial Bank Ltd.

Unibank Swift

5. National Bank Ltd.

Unibank Swift

Pakistani Manufacturing Companies

Name of Standard ERP

1. Atlas Honda Ltd.

SAP(ERP) Germany

2. Pakistan Tobacco Co

1. Atl1. Atlas Honda Ltd.as Honda Ltd.

SAP(ERP) System

3. Lakson Tobacco

SAP(ERP) System

4. Indus Motors Ltd

SAP(ERP) System

5. Packages Ltd

SAP(ERP) System

Conclusion

The literature review and secondary data established that ERP play an important role in growth and uplift of today's organizations and a country's development. ERP is a major source of change and revolution in the working of organizations now a day. It is also established through data analysis that ERP is the important management tool. It occupies a key role in modern science and technology. It is having a pervasive impact on effect every sphere of life and is having great presence in all industries, in service, as well as, in manufacturing. ERP is being used in all functional areas of the organizations to increase their performance and it is now playing more important role in the organizations than labor and capital do. Over the time

the use of ERP has increased rapidly in all the organizations

There are different Unibank Soft, ERP's i.e SAP, Orcle & Microsoft Dynamic etc in the organizations to help managers to perform their tasks efficiency and effectively as per their level. The organizations are using ERP to achieve new goals and processes and perform the things that were not already done. In one line we say that employee's efficiency increase because of implementation of ERP in local baking and manufacturing sector since 1990s. ERP investments have positive impacts on the performance of the organizations and management efficiency

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