Transcript A Balanced Scorecard Approach to Measure ERP Performance

A Balanced Scorecard Approach to Measure
Performance of Enterprise Resource Planning
Systems
By
MARIKA NANCY MOGIKOYO,
DR. MURANGA NJIHIA &
DR. PETERSON MAGUTU
Department of Management Science,
School of Business, University of Nairobi
4/13/2015
1
Outline

Introduction









Global use of Information Systems
Use of ERP Systems in Business
Success in use of ERP Sytems
The Balanced Scorecard
Balanced Scorecard Approach to measure ERP Performance
Problem Statement
Methodology
Discussion of Findings
Conclusion
4/13/2015
2
Global use of Information Systems


An Information System (IS) is a set of interrelated
components working together to facilitate operational
functions and to support management decision making
by producing information that enables managers to
plan and control (Farzad Shafiei & David Sundaram,
2004).
Organisations have sought to implement Information
Systems with the intention of improving their
performance and competitiveness.
4/13/2015
3
ERP Systems



The environment that business firms operate in is an open,
turbulent and ever-changing system (Paul Muturi Kariuki,
Dr. Zachary B. Awino, & Dr.Martin Ogutu, 2011).
Therefore, most organisation have sought to implement
ERP systems to improve efficiency and competitiveness in
their business processes.
Enterprise Resource Planning (ERP) System is an
Information System that integrates the functions of an
organization and allows for free flow of information
(Christian N. Madu & Chu-hua Kuei, 2006).
4/13/2015
4
Success in use of ERP Systems



Addo & Helo, (2011), argue that without proper
implementation, the benefits of productivity and improved
competitiveness may not be realized.
This position is supported by Batada, I., and Rahman, A. (2012)
who looked at ERP system implementation as a journey towards
the goal whereby the goal is achieved when the system is
completely used and users are satisfied with the system.
Therefore, successful implementation of the ERP system is
not just installation of a robust system that has no errors but
also an effort by all the stakeholders of the organization to
support use of the system in order to meet the objectives of
the organization.
4/13/2015
5
ERP and Business Performance





Business have adopted ERPs in an attempt to improve
performance.
Business performance can be operationalised as financial
gains, operational improvements or intangible gains for the
organisation gains (Elragal, A. A., Al-Serafi, A. M., 2011).
The focus of this paper is on the operational and intangible
gains.
The balanced scorecard method was used to evaluate these
gains from the users perspective.
The balanced scorecard is a performance management tool
that is used by organizations to measure performance.
4/13/2015
6
The Balanced Scorecard
4/13/2015
7
The Balanced Scorecard





The balanced scorecard has four perspectives.
The Learning & Growth Perspective looks at what an
organization should do to achieve its vision.
The Business Process perspective refers to internal business
processes and what should be done so as to satisfy customers
and stakeholders
The customer perspective shows an increasing realization of
the importance of customer focus and customer satisfaction in
any business because if customers are not satisfied, they will
find other suppliers who will meet their needs and
The financial perspective looks at what should be done for
the organization to succeed financially (Kaplan and Norton,
2001).
4/13/2015
8
Balanced Scorecard for Measuring ERP
Performance
Savings Perspective
Internal Customer Perspective
Success in complete usage of the
ERP System
Enhanced Processes Perspective
Information Availability Perspective
4/13/2015
9
Balanced Scorecard for Measuring ERP
Performance




The Internal Customer Perspective is concerned with how the
user benefits from using the system in terms of ease in
workload and simplification of tasks.
The Enhanced Processes Perspective looks at how the ERP
System has improved business processes for the users of the
system for example reduction in paper work & efficiency.
The Information Availability Perspective looks at how the
system protects data and information that is stored in the ERP
database in terms of provision of accurate data, up to date
information and instant reports.
Lastly, the Savings Perspective looks at how the ERP system
helps save time, saves in operating costs, reduction in staff and
reduction in inventory levels.
4/13/2015
10
Problem Statement



Studies have presentenced varying views on whether the ERP
system improves the performance of the organisation.
Most studies support that ERP systems helps organisation increase
efficiency of processes, access faster and accurate information,
result in easy availability of information, improve decision making,
reduces paper work (Gatticker et al 2005; Christian N. et al, 2006;
Mittal, E. P., et ,2011; Batada I et al, 2012).
Other studies have cited failure of ERP implementation efforts
leading to organisations losing a lot of money, as being lack of
proper planning, lack of user involvement and training, resistance
of change by users, lack of top management support (Ado and
Helo, 2011; Mose, J. M., Njihia, J. M., & Magutu,O., 2013) and
even different interest between vendor and implanting
organisations (Chou, S. W., & Chang, Y. C. , 2008).
4/13/2015
11
Problem Statement



i.
ii.
Previous studies have shown that failures in ERP Systems
implementation are to a large extent as a result of human issues e.g.
lack of user acceptance to change, lack of support of the ERP
system by users, lack of top management support and lack of user
involvement and proper training in using the ERP system.
This study therefore sought to find out the benefits of using ERP
systems and overall ERP performance from the users perspective
in Supermarkets in Nairobi, Kenya.
The specific objectives are:To establish the benefits of using ERP Systems as perceived by
users in Supermarkets in Nairobi, Kenya.
To evaluate the performance of the ERP System as perceived by
users in Supermarkets in Nairobi, Kenya.
4/13/2015
12
Methodology




The research was a descriptive survey of Supermarkets in
Nairobi, Kenya.
The research model that was adopted is the Balanced
Scorecard.
The population was all Supermarkets in Nairobi, Kenya.
The sampling technique that was used is purposive
sampling technique focusing on the Supermarkets that have
more than two branches.
4/13/2015
13
Data analysis



Analysis of Data was done using Descriptive Statistics and
Inferential Statistics.
Part A of the questionnaire had demographic information
and it was analysed using Frequeny and Percentages.
Crosstabulation was also carried out between demographic
factors and overall performance of ERT systems.
Part B of the questionnaire was analysed using Mean and
Standard deviation, Weighted Mean and Factor Analysis.
4/13/2015
14
Discussion



Five Supermarkets in Nairobi CBD participated in the
research. These are Nakumatt, Uchumi, Tuskys, Ukwala and
Naivas.
A total of 50 questionnaires were distributed and 47 were
received indicating a response rate of 94%.
Staff from departments that use the ERP system in their day
to day functions were interviewed. They were from IT
department, Operations, Customer Service, Procurement,
Finance and Human Resource.
4/13/2015
15
Discussion :Demographic Information





Majority of the respondents were in the age bracket of 26-35
years (68.1%), 19.1% were in the age bracket of 18-25 and
12.1% were in the age bracket of 36-45.
More males (63.8%) than females (36.2%) participated in the
research.
57.4% of the respondents had Diplomas followed by 34% who
had Bachelors. Only 6% had Masters Qualification and 2.1%
had High School qualification.
The findings of the research indicated that majority of the
Supermarkets, (40%) have been in existence for above 20
years, 20% between 15-20 years and the others below 15 years.
Most of the Supermarkets had used the ERP system for 6-10
years.
4/13/2015
16
Chi-Square test: Differences between males and females


It was observed that more male employees than female
employees were positive on ERP performance.
90% of the male population indicated that overall the ERP
system would improve the organisation performance
compared to 53.3% of the female employees.


Hence it is likely that male employees appreciate ERP systems/
technology more than female employees.
The Chi-square calculated value (X2) was 1.429, which is
less than the critical value 5.99 from the table for a
probability of 0.05 and a degree of freedom of 2.

This means there was no significant difference in overall ERP
performance perception amongst male and female employees.
4/13/2015
17
Chi-Square test: Differences between employees of different supermarkets



It was observed that employees of most supermarket
responded that overall ERP systems would improve
performance..
90.0% of Nakumat employees, 90.9% of Uchumi
employees, 100% of Tuskys employees, 84.6% of Naivas
employees and 100% of Ukwala employees indicated that
ERP swould improve performance in general..
The Chi-square calculated value (X2) was 12.657, which is
less than the critical value 15.51 from the table for a
probability of 0.05 and a degree of freedom of 8.

This means there was no significant difference in overall ERP
performance perception amongst employees of different
supermarkets.
4/13/2015
18
Chi-Square test: Differences between age groups

88.9% of age group 18-25 indicated that ERP Systems
would improve performance, 59.4% of age group 26-35 and
100% of age group 36-45.



It was surprising that the older generation 36-45 years were more
positive regarding ERP performance than age group 26-35 years.
The younger generation (below 35 years) is expected to accept new
technology more easily than the older generation.
However, the Chi-square calculated value was 1.077, which
is much less than the critical value 9.49 from the table for a
probability of 0.05 and a degree of freedom of 4.

This means there was no significant difference in ERP
performance perception between the various age brackets.
4/13/2015
19
Chi-Square test: Differences among Departments

100% of staff in IT Department indicated that ERP Systems
would improve performance, 92.3% in Operations, 92.8%
in Customer Service, 100% in Procurement, 0.75% in
Finance, 50% in HR and 66% in other Departments.


The frequencies showed that there was generally confidence in
ERP performance across the Departments. .
However, the Chi-square calculated value was 18.616,
which is less than the critical value 23.69 from the table for
a probability of 0.05 and a degree of freedom of 14.

This means there was no significant difference in ERP
performance perception among staff in various departments.
4/13/2015
20
Relative Importance of Perspectives



The performance of each perspective was calculated and
the perspectives were ranked according to their means as
shown in table 2..
The Savings Perspective ranked highest with a mean of
1.8571 followed by the Information perspective with a
mean 1.7893, third was Enhanced Processes perspective
with a mean of 1.806 and lastly the Internal Customer
Perspective with a mean of 1.661.
This means that the employees of the Supermarket
considered ERP system implementation to be performing
best in Savings, followed by improving businesses processes,
third was ERP systems better information availability and
lastly ERP was least in Internal Customer performance.
4/13/2015
21
Relative Importance of Perspectives
Rank
Perspective
1 Savings
2 Enhanced Processes
3 Information
4 Internal Customer
4/13/2015
Mean
Standard Deviation
1.8571
0.7552
1.806
0.7273
1.7893
0.7384
1.661
0.6046
22
Factor Analysis


A factor analysis was undertaken to determine the benefits of
ERP system that are associated with performance of each
perspective.
The factors were determined as:












Factor I: Reduced Risks
Factor II: Consultation
Factor III: Information Access
Factor IV: Support
Factor V: Efficiency
Factor VI: Improved Inventory Management
Factor VII: Empowerment
Factor VIII: Usability
Factor IX: Improved Performance
Factor X: Cost cutting
Factor XI: Technology
Factor XII: Effectiveness
4/13/2015
23
Factor Analysis: Table 2
Ranking
Perspective
1 Savings
2 Internal Customer
Information & Enhanced
3 Processes
4 Internal Customer
5 Enhanced Processes
6
7
8
9
10
11
12
Saving
Information
Internal Customer
Saving
Saving
Information/Enhanced Processes
Enhanced Processes
4/13/2015
Factor
Factor
Score
Risk reduction
Consultation
0.8605
0.812
Information Access
Support
Efficiency
Improved Inventory
Management
Empowerment
Usability
Improved Performance
Cost cutting
Technology
Effectiveness
0.7973
0.754
0.7475
0.746
0.7405
0.7203
0.713
0.7036
0.684
0.6607
24
Conclusion


The ranking of the perspectives showed that the Internal
Customer Perspective scored least with a means score of 1.661.
Based on this evaluation, we can conclude that this perspective
requires improvement.
This perspective can be improved by involving users more in
system selection and implementation, making the system more
user friendly by simplifying the tasks and training users in good
time before implementing or upgrading the system.


However, because of the sampling location, the findings of this research
should be treated as indicative rather than conclusive of the performance of
ERP systems in organisations.
It is hoped that this study be useful in providing useful
insight to incorporating users when implementing ERP
systems in organisations.
4/13/2015
25