Proceedings of the 7th

World Congress on Intelligent Control and Automation

June 25 - 27, 2008, Chongqing, China

An IT Governance Framework of ERP System

Implementation for Chinese Enterprises
Zhuang Chen

Taige Wang

CIMS Institute, Chongqing Institute of Technology,

Chongqing 400050, P. R. China
cz@cqit.edu.cn

Dept. of Software Engineering, Chongqing Institute of

Technology, Chongqing 400050, P. R. China
wtg@cqit.edu.cn

Abstract - Enterprise resource planning (ERP) system that

can effectively reduce product cost, improve customer service
experience, and increase enterprise competitiveness is one of the
most significant information systems for Chinese enterprises.
However, the successful implementation rate of ERP system is
much lower than initially planned and many enterprises did not
achieve their intended goals. There are a lot of factors (e.g., high
implementation costs, technical complexity, lack of well-trained
employees, lack of incentive mechanisms, etc.) resulting in this
situation, but the key element is the separation of the relationship
between ERP system and enterprise leadership, organizational
structure and business processes. Aiming at the key issue, an IT
governance framework of ERP system implementation is
developed based on information technology governance
methodology, which includes six components (i.e., enterprise
strategy and organization, ERP-related organization and
desirable behavior, ERP-related governance arrangements, ERPrelated governance mechanisms, ERP-related business
performance goal, ERP-related metrics and accountabilities.).
The requirements of each component are described. Furthermore,
a case of ERP system implementation is used to illustrate the
proposed framework, which takes into account sufficiently the
relationships among ERP system, business objectives, business
processes, and business performances.

IT Governance is a subset discipline of Corporate

Governance focused on information technology (IT) systems
and their performance. Weill and Ross define IT governance
as "Specifying the decision rights and accountability
framework to encourage desirable behavior in the use of IT."
[1]. Effective IT governance helps ensure that IT supports
business goals, optimizes business investment in IT, and
appropriately manages IT-related risks and opportunities[5].
An overseas survey shows that enterprises that perform well in
IT governance may gain returns on IT investment 40% higher
than their competitors; those that have average performance in
IT governance may make 20% more profit than those are
inefficient in IT governance, given the same business strategy
[6].
ERP system is a critical IT application system for the
Chinese enterprises. In order to increase the successful
implementation rate of ERP system and improve the returns
on ERP investment, we intend to apply the IT governance onto
ERP implementation and propose an IT governance
framework of ERP system implementation for the Chinese
enterprises.

Index Terms - IT Governance, Enterprise resource planning

(ERP), Framework, Implementation methodology.

II. IT GOVERNANCE FRAMEWORK OF ERP SYSTEM

I. INTRODUCTION

Based on the connotation of IT governance [1] and the

condition of Chinese enterprises ERP system, we propose an
IT governance framework of ERP system implementation for
Chinese enterprises shown in figure 1, which includes six
components, i.e., Enterprise strategy and organization, ERPrelated organization and desirable behavior, ERP-related
governance
arrangements,
ERP-related
governance
mechanisms, ERP-related business performance goal, ERPrelated metrics and accountabilities.

Enterprise resource planning (ERP) is a multi-module

application software system that allows a company to manage
its business with potential benefits of improved process flow,
reduced inventories, better data analysis, better customer
service, and improved profit margin [7]. ERP aims to integrate
functional-area information systems within a firm into a
coherent, enterprise-wide, and web-enabled network [8].
Recently, though a lot of Chinese enterprises have
implemented ERP system, their implementation effectiveness
are not satisfied [9]: only 10% to 20% enterprises realize the
integration among ERP modules, more than 50% enterprises
fail to run ERP system. There are a lot of factors (e.g., high
implementation costs, technical complexity, lack of welltrained employees, lack of incentive mechanisms, etc.)
resulting in this situation, but the key element is the separation
of the relationship between ERP system and enterprise
leadership, organizational structure and business processes.
Therefore, more and more academic experts and entrepreneurs
are researching and seeking some useful methodologies to
resolve the problem.

978-1-4244-2114-5/08/$25.00 2008 IEEE.

4929

IMPLEMENTATION

Enterprise
strategy and
organization

ERP Strategy Committee

CEO

te d
ela
al
P-r ess
ER usin ce go
b an
rm
r fo

ERP Strategy Committee

pe

E
or RP
de gani -rela
sir zat ted
ab
le b ion a
eha nd
vio
r

ERP leadership Council

ERP Steering Com mittee

ERP executive board

ERP system
implementation

CIO

te d
ela e
P-r anc s
ER ern ent
gov ngem
a
a rr

ER
m P-r
acc etri elate
o u cs a d
n ta n d
bi l
itie
s

ERP Architecture Committee

ERP application
units 1

ERP application
units 2

ERP application
units n

Fig. 2. ERP-related organization structure

ERP-related
governance
mechanisms

Fig. 1 IT governance framework of ERP system implementation

III. THE REQUIREMENTS OF EACH COMPONENT IN THE

FRAMEWORK

A. Enterprise strategy and organization

Generally, enterprise strategy that helps enterprise to
accomplish its missions includes the following consideration.
Improves cost control effectiveness
Increases revenue
Builds new business capabilities
Executes the core business processes (typically, those that
differentiate products and services with others and add
additional value to them over time)
Adapts new business models
In order to implement the enterprise strategy, the firm
needs to set up some organizations, which generally have the
following responsibilities.
To explain and clarify business strategies
To assign the role within ERP system and accountability
for the required change of the organization to benefit from the
ERP system
To allocate and manage the resource spending on the ERP
system
To monitor the investment returns from the ERP system
To analyze the results from each implementation of ERP
system in order to share and reuse ERP modules
To encourage the desirable behaviors to utilize the ERP
application
B. ERP-related organization and desirable behaviour
1) ERP-related organization
The hierarchy structure of ERP-related organizations is
shown in figure 2 and every organizations responsibility is
given as follows.

4930

1. ERP leadership Council

Ensure that management has put an effective strategic
planning process in place
Ratify the alignment of the business goals and the ERP
system
Ensure that the IT organizational structure complements
the business model and direction
Assess senior managements performance on the
operation of the ERP system
2. ERP Strategy Committee
Confirm that the ERP/business architecture is designed
to drive maximum business value from ERP system
Verify strategy compliance, i.e., the objectives of the
ERP system
Review the measurement of ERP performance and the
contribution of ERP to the business
3. ERP Steering Committee
Define the priority of each ERP module
Assess ERP system how to improve the business
processes
Perform portfolio review for the cost optimization of
the ERP system
4. CEO (Chief executive officer)
Align and integrate ERP system with business goals
Align ERP operations with business operations
Cascade strategies and goals down into the organization
Mediate between imperatives of the business and of the
ERP system
5. ERP executive board
Allocate business resources required to ensure effective
IT governance over ERP projects and operations
Act as sponsor for major ERP modules
Control the application level of ERP system
Identify and acquire new requirement of ERP system
6. CIO (Chief information officer)
Clarify and demonstrate the value of ERP system
Perform the day-to-day management and verification of
ERP system development and application
Implement ERP standards and related policies
7. ERP Architecture committee
Identify strategic technologies and standardsenforcement to support the ERP system

Direct IT architecture design

Consult/advise on the guidelines of the application of
architecture
8. ERP application units
Propose business units implementation methodology
based on ERP related module
Operate the ERP software skillfully
2) Desirable behaviors
It relates to some useful behaviors while implementing the
ERP system as following [4].
Seamless integration of ERP modules
Involvement and alignment with business goals
Business driven decision-making for ERP system
Prudent ERP investing
Responsible utilization of the ERP system
End2End process management
C. ERP-related governance arrangements
ERP-related governance arrangements assign decision
responsibilities for the key ERP decisions. There are six kinds
of governance archetypes (i.e., Business monarchy, IT
monarchy, Feudal, Federal, IT duopoly, Anarchy) and five key
ERP decisions (i.e., ERP Principles, ERP Architecture, ERP
Infrastructure Strategies, Business Application, ERP
Investment) to be selected by enterprises [3].
Governance archetypes are:
Business monarchy: Top managers having the decision
rights.
IT monarchy: IT specialists having the decision rights.
Feudal: Each business unit making independent decisions
Federal: Combination of the corporate center and the
business units with or without IT people involved
IT duopoly: IT group and one other group (for example, top
management or business unit leaders) having the decision
rights.
Anarchy: Isolated individual or small group decision
making.
Key ERP decisions are:
ERP Principles: Clarifying the business role of ERP.
ERP Architecture: Defining integration and standardization
requirements.
ERP Infrastructure Strategies: Determining shared and
enabling services.
Business Application: Specifying the business need for
purchased or internally developed ERP applications.
ERP Investment: Choosing which initiatives to fund and
how much to spend.
Because each of the five key ERP decisions has a choice
of six governance archetypes, it will yield 65=7776 possible
combinations. From the survey [1][3], the three most effective
arrangements are shown in table I.
TABLE I
TOP THREE EFFECTIVE ARRANGEMENTS

D. ERP-related governance mechanisms

4931

ERP-related governance mechanisms are shown in table

II.
D ecisio n
A r ch ety p es
A r r ang emen t
No.

ERP
Principles

ERP
Architecture

ERP
Infrastructure
Strategies

Business
Application

ER P
Inv est ment

Arrangement 1

IT
d u op o ly

IT
monarchy

IT
mo n ar chy

Fed er al

I T d uo po ly

Arrangement 2

IT
d u op o ly

IT
monarchy

IT
mo n ar chy

I T d uo po ly

Bu sin ess
mo n ar chy

Arrangement 3

Business
monarchy

Business
monarchy

Bu sin ess
mo n ar chy

Fed er al

Bu sin ess
mo n ar chy

TABLE II
COMMON GOVERNANCE MECHANISM

Types

Mechanisms
ERP leadership Council comprising
CEO

Decision-making
structures

ERP executive board comprising CIO

ERP Architecture committee

Alignment
Processes

Communication
Approaches

ERP application units with IT members

Tracking of ERP projects and resources
consumed
Services-level agreements
Formally tracking business value of
ERP
Chargeback arrangements
Work with managers who dont follow
the rules
Senior management announcements
Office of CIO or office of IT
governance
Web-based portals and intranets for
ERP

E. ERP-related business performance goal

1) Financial perspective
Provide a good return on investment of ERP-enabled
business investments
Manage ERP-related business risk
Improve corporate governance and transparency
2) Customer perspective
Improve customer orientation and service.
Offer competitive products and services.
Establish service continuity and availability.
Create agility in responding to changing business
requirements.
Achieve cost optimization of service delivery.

Obtain reliable and useful information for strategic

decision-making.
3) Internal perspective
Improve and maintain business process functionality.
Lower process costs.
Provide compliance with external laws, regulations and
contracts.
Provide compliance with internal policies.
Manage business change.
Improve and maintain operational and staff
productivity.
4) Learning and growth perspective
Manage product and business innovation.
Acquire and maintain skilled and motivated people
F. ERP-related metrics and accountabilities
1) Measured by Key Goal Indicators (KGIs)
Number of changes to targets for key processes
effectiveness and efficiency
Amount of satisfaction of management and the
governance entity with ERP system
Amount of reduction in the number of outstanding
process deficiencies
Amount of stakeholder satisfaction with the measuring
process
Percent of critical processes monitored
Number of improvement actions driven by ERP system
Number of performance targets met
2) Measured by Key Performance Indicators (KPIs)
Return on equity (ROE)
Return on investment (ROI)
Return on assets (ROA)
Percent Change in revenue per annum
Three-year average industry-adjusted percent change
Time lag between the reporting of the deficiency and
the action initiation
Amount of delay to update measurements to reflect
actual performance objectives, measures, targets and
benchmarks
Number of metrics (per process)
Number of cause-and-effect relationships identified
Amount of effort required to gather measurement data
Number of problems not identified by the measurement
process
Percent of metrics that can be benchmarked to industry
standards and set targets
Percent margin
IV. AN EXAMPLE OF ERP SYSTEM IMPLEMENTATION BASED ON
THE FRAMEWORK

Figure 3 illustrates an example of ERP system

implementation based on the framework for a Motor industrial
firm. In the figure, the middle part is the process of ERP
system implementation; both sides are the implementation
methodologies for ERP system based on IT governance
initiatives; the arrows describe the relationships among ERP

4932

system, business objectives, business processes, and the

frameworks six components.
Business
Objecti ve

ERP-related
busi ness
performance
goal

ERP-r el at ed
gover nance
mechanisms
Engineeri ng
ERP-r el at ed
gover nance
arrangement

ERP-r el at ed
organization
and desirable
behavior

Enterpri se
strategy and
organization

Procurement

Sal e &
Distr ibuti on

Manufact ur ing
Cust omer
Ser vi ce

Busi ness Process of

a Motor Industri al Fi rm

ERP-related
metri cs and
accountabi li ties

Supplier
Ti me-toBui ld-t o- Order
Coll aboration
Mar ket System
Syst em
System

Customer
Service
System

Customer
Service
System

Financial
Management
system

ERP System ( modules)

Fig. 3 An example of ERP system implementation based on the

framework

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