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A Balanced Scorecard Based Framework

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Systems

Article in Computers in Industry · August 2005

DOI: 10.1016/j.compind.2005.02.011 · Source: DBLP

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1 Computers in Industry xxx (2005) xxx–xxx

www.elsevier.com/locate/compind

3 A balanced scorecard based framework for assessing

the strategic impacts of ERP systems

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4
Donald Chand *, George Hachey, James Hunton, Vincent Owhoso, Sri Vasudevan
5
6 Bentley College, Waltham, MA 02452, USA
78 Received 29 March 2004; received in revised form 14 December 2004; accepted 13 February 2005
109

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11
Abstract
12
13 Although there is no analytical framework for assessing the organizational benefits of ERP systems, several researchers have
14 indicated that the balanced scorecard (BSC) approach may be an appropriate technique for evaluating the performance of ERP
15
16
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systems. This paper fills this gap in the literature by providing a balanced-scorecard based framework for valuing the strategic
contributions of an ERP system. Using a successful SAP implementation by a major international aircraft engine manufacturing
17 and service organization as a case study, this paper illustrates that an ERP system does indeed impacts the business objectives of
18 the firm and derives a new innovative ERP framework for valuing the strategic impacts of ERP systems. The ERP valuation
19 framework, called here an ERP scorecard, integrates the four Kaplan and Norton’s balanced scorecard dimensions with Zuboff’s
20 automate, informate and transformate goals of information systems to provide a practical approach for measuring the
21 contributions and impacts of ERP systems on the strategic goals of the company.
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22 # 2005 Published by Elsevier B.V.

23 Keywords: Strategic impact; Scorecard based framework; ERP system

24
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25 34
33
1. Introduction 1. ERP systems are off-the-shelf pre-written software 35
26 with sufficient flexibility to integrate most of the 36
27 ERP stands for Enterprise Resource Planning, and business processes of an enterprise. 37
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28 the term is used for any software system designed to 2. ERP systems are at least an order larger than any 38
29 support and automate the business processes of traditional business application software. They are 39
30 medium and large businesses. The well-known ERP large in terms of function point measure. They are 40
31 systems are SAP R/3, Oracle Applications, PeopleSoft large in terms of business functionality. They are 41
32 and Baan. The key characteristics of ERP systems are large in terms of the data items in the database. 42
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summarized below. They are large in terms of the operational and 43

34
33 management reports that can be generated. 44
35 3. ERP systems are very complex. Besides the usual 45
36 * Corresponding author. correlation between size and complexity, there is 46
37 47
38 0166-3615/$ – see front matter # 2005 Published by Elsevier B.V. 48
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49 100
50 an inherent data structures complexity in ERP measures that impact the business objectives and 101
51 systems because ERP modules do not share data by strategies of the organization. This new valuation 102
52 passing it from one module to another module but framework, called the ERP scorecard, roots the four 103
53 makes it available to different modules via balanced scorecard dimensions into Zuboff’s [9] 104
55
54 common data structures. notions of automate, informate and transformate. 105
56 4. ERP systems are built on generic business rules and The rest of paper is organized as follows. The next 106
57 procedures. Thus, each implementation requires section presents a review of the appropriate research 107
58 tailoring and customizing the modules based on the literature. This is followed with a description of the 108
59 business practices of the organization. This often case organization and their SAP implementation 109
60 entails reengineering many of the current business process. Using the SAP implementation as a case 110

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62
61 processes. study, we next show that an ERP system impacts the 111
63 5. The organizational reach of ERP systems is wide, strategic goals of a firm and the four balanced 112
64 and therefore an ERP implementation requires scorecard dimensions are applicable to assess the 113
65 dealing with a very large portion of the business benefits and measure the value-added contributions of 114
67
66 operations of the organization. ERP systems. After this, the derivation of a new ERP 115

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68 6. ERP systems are costly to buy and more expensive valuation framework, called an ERP scorecard, is 116
69 to implement in an organization. described. The paper closes with a comprehensive 117
70 summary of the contributions of this new ERP 118
71 Since installing an ERP system is an expensive and scorecard. 119
72 risky venture, the technical and managerial challenges
73 of implementing ERP systems are widely researched DP
74 and analyzed in Refs. [1–5]. However, the problem of 2. Review of the relevant ERP literature
75 assessing the benefits of ERP systems is less well 120
76 studied and understood despite the observation that the Booth et al. [7] noted that no analytic framework 121
77 difficulties experienced in measuring the business exists to examine the potential benefits after the ERP 122
78 value of ERP systems are not atypical of most IT system is successfully implemented and put in use. 123
79 projects. While there is some research that focuses on Markus and Tanis [4] identify various reasons, listed in 124
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80 factors influencing ERP implementation success [6,4], Table 1, that motivate organizations to implement ERP 125
81 the question of how to measure the benefits of ERP in systems. They also suggest that there should be a 126
82 use has been raised but not fully analyzed. Specifi- connection between the reasons for adoption to the 127
83 cally, there is a lack of an analytic framework, benefits. For example, we can extract both financial 128
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84 suggested in Ref. [7], that can serve as a guide for and non-financial benefits of ERP systems from the 129
85 identifying measures for assessing the benefits and reasons listed in Table 1. Financial benefits are 130
86 success of ERP systems. The idea of developing an reduction of computer operating costs, reduction of 131
87 ERP balanced scorecard has been suggested by several business operating and administrative expenses and 132
88 authors but only Rosemann and Weise [8] have reduction in inventory costs and stock outs, and non- 133
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89 attempted to apply the balanced scorecard approach to financial measures are reduction in data errors, 134
90 the specific task of managing ERP systems. improved efficiency of business processes, and 135
91 This paper addresses two key questions: (1) does an improved decision support. However, these benefits 136
92 ERP system impacts the strategic goals of a firm? and do not tell whether an ERP system impacts the 137
93 (2) can an analytical framework be built to system- strategic goals of a firm. 138
94 atically analyze the benefits and strategic contribu- Shang and Seddon [10] compiled an ERP benefits
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139
95 tions of an ERP system? Based on an analysis of a list from ERP vendor success stories published on the 140
96 successful implementation of SAP in a global engine Web. Follow-up interviews and analysis led Shang and 141
97 manufacturing and service organization this paper Seddon to classify the different types of ERP benefits 142
98 illustrates the applicability of the balanced scorecard as: (1) IT infrastructure benefits, operational benefits, 143
99 (BSC) to ERP systems and derives a new valuation managerial benefits, strategic benefits and organiza- 144
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100 framework for discovering and defining ERP success tional benefits. The IT category consists of the typical 145

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Table 1

Technical reasons Business reasons

Solve Y2K problem Accommodate business growth
Replace hard-to maintain interfaces Acquire multi language capability
Reduce software maintenance burden through outsourcing Acquire multicurrency IT support
Eliminate redundant data entry Improve inefficient business processes
Reduce data errors Reduce business operating and administrative expenses
Decrease computer operating costs Reduce inventory carrying costs and stock outs
Integrate applications cross-functionally Eliminate delays and errors in filling customers’
orders for merged businesses

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Ease technology capacity constraints Provide integrated IT support
Improve IT architecture Standardize procedures across different locations
Consolidate multiple different systems of the same type Present a single face to customer
Acquire worldwide ‘‘available to promise’’ capability
Streamline financial consolidations
Improve companywide decision support

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145 176
146 IT department benefits arising from reduction in cost of The application of the BSC has been examined in 177
147 maintaining legacy systems. The operational benefits the context of IT and information systems. van 178
148 are those that arise from automating cross-functional Grembergen and van Bruggen [13] show that the BSC 179
149 processes. The managerial category includes benefits model can be applied to the IT function. They
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150 that arise from the use of data to better plan and manage operationalize the four balanced scorecard dimensions 181
151 production, manpower, inventory and physical resou- of customer, finance, internal business processes and 182
152 rces and from the monitoring and control of financial learning and growth as user-orientation, corporate 183
153 performance of products, customers, business lines and contribution, operational excellence and future orien- 184
154 geographic area. The strategic benefit category focuses tation, respectively. In Ref. [14], they illustrate the 185
155 on the benefits that arise from the systems ability to application of their IT balanced scorecard model for a 186
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156 support business growth. The organizational benefits Canadian Financial group. 187
157 category captures the benefits derived from facilitating The application of the BSC to ERP systems is 188
158 business learning, empowerment of staff and higher discussed in Refs. [8,15]. Since BSC was conceptua- 189
159 employee morale and satisfaction. lized as an approach for strategic management of a 190
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160 Shang and Seddon benefits categories can serve as firm, Rosemann and Wiese frame the application of 191
161 a useful framework for evaluating the benefits of ERP BSC to ERP systems as strategic management of an 192
162 systems. However, this framework does not link the ERP system. They partition the ERP strategic 193
163 benefits to the reasons for ERP implementation as management processes into management of ERP 194
164 recommended by Markus and Tanis [4]. Furthermore, implementation and management of operational use of 195
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165 Shang and Seddon categories do not consider the time ERP software, and they propose a separate balanced 196
166 frame for the benefits, as noted by Davenport [11] that scorecard for each part. Since their work is conceptual, 197
167 there are different types of benefits from ERP system Rosemann and Wiese provide key question that drive 198
168 and some are likely to arise earlier than others. the identification of measures in each of the four BSC 199
169 Markus and Tanis [4] indicated that the balanced dimensions for ERP implementation and ERP opera- 200
170 scorecard [12] might be the most appropriate tional use, as shown in Table 2.
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201
171 technique for evaluating the benefits of ERP systems. In our judgment, Rosemann and Wiese’s framing of 202
172 The key insight of the balanced scorecard approach is BSC application to ERP arena is faulty because their 203
173 that when non-financial measures about customer ERP balanced scorecard approach does not connect 204
174 satisfaction, internal processes and ability to innovate with the business goals and strategy of the organiza- 205
175 and learn are combined with the financial measures tion. We found that adapting and configuring van 206
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176 they assure future financial results. Grembergen’s BSC-IT framework to ERP systems 207

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Table 2

ERP implementation ERP operation

Financial What is the detailed cost of
ERP implementation?
Customer Does the ERP software efficiently
support the individual needs?
Internal process Does ERP software improve the
internal business processes?
Innovation and Is ERP software flexible enough to
learning integrate future changes?
What is the financial input necessary for achieving
targeted performance level?
What benefits derives the company from a certain
level of performance?
Are internal processes effective and efficient in assessing
level of performance determined by customer perspective?
Does ERP system have enough potential for
future customer needs?

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207 244
208 appears to be more appropriate than Rosemann and 3. The case organization and SAP 245
209 Wiese approach for building balanced scorecards for implementation
210 ERP systems. However, van Grembergen’s approach 246
211 requires building cascading balanced scorecards The case organization used in this study is in the 247

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212 from the ERP systems level, to the IT department business of aircraft engine design, engine manufactur- 248
213 level, to the organization level in order to link the ing, engine repairing and engine servicing. The 249
214 ERP balanced scorecard to the organizational busi- company deals with both government and commercial 250
215 ness objectives. This puts the creation of ERP aircraft engines business, and its design and repair 251
216 scorecard within the context of building the organiza- facilities are distributed globally. The company’s 252
217 tional balanced scorecard, which is a very complex manufacturing facilities are distributed in several states
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218 and time consuming process. A more direct approach in the US, and engine servicing depots are located in 254
219 of building ERP balanced scorecards is needed that Southeast Asia, Northern Europe and the United States. 255
220 aligns ERP implementations and operations with The IT department consists of approximately 500 256
221 strategic business objectives to maximize the value- professionals distributed across three departments: 257
222 added contribution of the ERP system to an organi- business applications systems, software applications 258
223 zation. and IT infrastructure. The latter two functions are 259
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224 In summary, our notion of ERP systems success is outsourced to a renowned global IT outsourcing 260
225 broader and more comprehensive than the ‘success’ company whose offshore software development partner 261
226 concept used by Rosemann and Weise [8]. Building on is in India. The IT personnel of the organization work 262
227 Zuboff’s [9] notions we suggest that the success of side-by-side with the IT outsourcing company’s 263
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228 ERP implementations and operations depends on the employees, and the IT outsourcing company’s person- 264
229 firm’s intention to use the ERP system to automate, nel who work with the case company are included in the 265
230 informate or transformate the organization. In our headcount of about 500 IT professionals. The IT 266
231 view, organizations begin with the goal of automating department is viewed primarily as a cost center by 267
232 business processes in a way that leads to seamless the organization and a service center by the IT 268
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233 accumulation of consistent data across the organiza- department, based on Venkatraman’s [17] categoriza- 269
234 tion, but they soon discover that ERP systems can be tion; and IT investments are focused primarily on 270
235 used to inform affected parties across the value-chain providing IT-enabled capabilities for existing business 271
236 such that decision-making at all levels is vastly strategies. 272
237 improved (informate). Furthermore, in order to SAP is being implemented using a phased 273
238 effectively provide value-added services to stake- approach, with a 4 year planned roll-out for each
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274
239 holders and compete in global markets, organizations phase. A national consulting firm served as the SAP 275
240 need to be agile and flexible and capable of business process consulting partner. The SAP imple- 276
241 reengineering and transforming themselves to survive mentation goal is to have one ERP system on a single 277
242 and thrive in today’s highly competitive markets. We platform with no legacy investment at the end of 4 278
243 will use a case study research method to build our years. There were 900–1000 legacy systems operating 279
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244 theory for ERP scorecard [16]. at the case company, plus a host of home-grown local 280

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280 322
281 applications. The SAP implementation for each phase tracking system is based on standard bar codes/ 323
282 was assigned to a specific executive owner from the scanner technology. First, the warehouses in a discrete 324
283 appropriate business unit. A cursory description of the location were converted; next, all the domestic 325
284 phases is presented to provide the background that the warehouses were converted; and last, all international 326
285 reader may need to understand the ERP scorecard warehouses were converted. 327
286 sample metrics that were identified by the IT and
287 business managers as success measures for their SAP 3.4. Phase IV (May 2000): full materials 328
288 systems. requisition deployment at site 1
329
3.1. Phase I (July 1999): initial site In this phase, the front-to-back supply chain was 330

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289 automated at the initial site. Full order processing, 331
290 The goal of phase I was to demonstrate a quick engine and parts management, labor and material 332
291 success, and develop a trusting working relationship accounting, logistics, parts disposition and invoicing 333
292 among the different SAP implementation partners; modules were implemented. 334
293 namely, the organization’s IT group, the SAP business

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294 process consultant and the IT outsourcer. A newly 3.5. Phase V (August 2000): production engine 335
295 acquired engine service depot was selected as the assembly
296 initial site for implementing SAP’s materials requisi- 336
297 tion modules for materials planning, procurement, Full project management of engine production 337
298 warehousing and financials. Because the engine depot assembly was implemented in SAP. Order proces- 338
299 had no legacy systems in this area and most business sing, engine and parts management, common labor
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300 processes were ad hoc and fluid, the implementation collection, logistics and configuration management 340
301 ran smoothly using the standard implementation modules were included. This implementation 341
302 methodology suggested by the business process allowed links with external suppliers via an Internet 342
303 consulting partner. portal. A key feature is that the supplier cannot ship 343
the part until the shipping label is printed, and the 344
3.2. Phase II (October 1999): core finance supplier cannot print the label until the assembly 345
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304 team at the depot is ready. More significantly, the 346

305 Since finance is the heart of ERP system, the need for custom SAP coding arose during this phase. 347
306 company made a decision to implement the core That is, a part allocated for new engine production 348
307 financial models next. Following the SAP implemen- assembly in the warehouse should not be issued 349
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308 tation textbook, each implementation of a core finance if it is needed for engine repair. Since standard SAP 350
309 module was managed by the appropriate business has no way to control this scenario, custom coding 351
310 partner. To avoid customization of SAP code, the had to be done for logical split between new engine 352
311 company decided to adopt an out-of-box implementa- parts and engine repair spares parts. This is one 353
312 tion strategy with standard configuration. The example of why custom coding is necessary despite 354
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313 accounting functions of general ledger, cost control- the philosophy of out-of-box SAP implementation 355
314 ling, fixed assets and accounts payable were imple- strategy. 356
315 mented, along with the business warehousing function
316 for decision making. The financial models were 3.6. Phase VI (August 2001): full materials 357
317 implemented globally. In February 2000, the organi- requisition deployment at site 2
318 zation upgraded to SAP 4.5 without any hitch.
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358
The goal of phase IV was to deploy the full 359
319 3.3. Phase III (March 2000): warehousing and materials-requisition solution that was successfully 360
parts tracking implemented at the initial site to engine center sites 2 361
320 and 3. The presence of legacy systems at site 2 362
321 In phase III, the warehousing and parts tracking required extensive data cleansing work, hence, this 363
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322 modules in SAP were implemented. The inventory phase was delayed. This implementation also high- 364

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364 406
365 lighted the need for more end-user involvement. The 3.10. Phase X (2003): deployment of the 407
366 data cleansing work led to the development of component repair modules to other repair 408
367 extensive three-cycle testing methodology involving facilities
368 power users: (1) sunny day tests were conducted 409
369 assuming that routine transactions were completed The organization is now involved in Phase X, 410
370 with no problems, (2) cloudy day tests were performed which involves deploying the component repair 411
371 assuming that certain known problems arose during modules of SAP in all other globally located repair 412
372 transaction processing and (3) regression tests were facilities. 413
373 run to ensure that the quality of the application did not This case organization is very happy with its ERP 414
374 degrade with debugging. In addition, a new user implementation efforts and outcomes. To understand 415

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375 training approach was developed. The organization how this organization is measuring the success of its 416
376 also became independent of the SAP business process ERP system, we interviewed the IT director and three 417
377 consulting firm during this phase because the standard functional area senior managers. These interviews 418
378 SAP implementation no longer worked; that is, revealed several outcomes that were impacted by the 419
379 implementation processes had evolved and adapted ERP system. As expected the ERP system has 420

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380 to the needs and problems of specific circumstances of streamlined the business processes by linking cross- 421
381 the organization. In addition, sufficient transfer of functional processes, reducing error rates, increasing 422
382 knowledge had occurred from the consultants to the information visibility and providing the case organi- 423
383 organization, that the consultants were no longer zation an infrastructure that is allowing it to better 424
384 viewed as value-added. meet and accommodate new requirements and 425
challenges. The company managers offered the
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385 3.7. Phase VII (February 2002): materials following specific outcomes to justify their success 427
requisition deployment at site 3 engine center claim of their ERP phased implementation.
386 429
428
387 The lessons learned in phase VI enabled a very  on time delivery of overhauled engines improved 430
388 smooth deployment at the site 3 Engine Center. from less than 50–95%; 431
 on time delivery of spare parts improved from 30% 432
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389 3.8. Phase VIII (August 2002): component repair to 90%; 433
implementation  the timeliness and availability of information 434
390 improved dramatically; 435
391 In this phase, the process of receiving an engine,  the reliability and integrity of data improved 436
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392 giving it an overall inspection, tearing it down into noticeably; 437

393 modules, inspecting the modules, repairing parts or  internal controls were tightened; 438
394 acquiring and replacing parts and assembling, testing  work stoppages, caused by lack of parts on the floor, 439
395 and shipping the engine back to the customer became dropped from several per month to an average of 440
396 paperless. This resulted in significant efficiency gains one-half per month; 441
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397 with respect to labor and time.  enterprise-wide standardization of core finance 442
modules now provides the same financial informa- 443
398 3.9. Phase IX (October 2002): management of tion to all the different stakeholders; 444
government funded programs  the inventory availability rates increased from 60– 445
399 70% to 95%; 446
400 Government funded programs have distinctive  the cost of engine assembly process has been
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447
401 requirements; for instance, a part ordered for a significantly reduced; 448
402 government project never belongs to the organiza-  improved customer satisfaction; 449
403 tion, therefore, the part is never considered as a  the later phases of the ERP implementation were 450
404 company inventory item. This unusual feature and executed better than the earlier phases; 451
405 many more unique requirements were implemented  the lessons learned from each phase are now captured, 452
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406 in phase VIII. documented and managed across the enterprise; 453

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466
465 510
467  refined training methods are enabling users to adapt standard SAP business processes. The training 511
468 to the system quickly and more effectively, mostly materials were narrative, documented in very thick 512
469 due to the innovative involvement of power users in books and cumbersome. By phase III of the 513
471
470 the creation and delivery of training; implementation, the organization realized that the 514
472  transfer of implementation process knowledge from training process was not effective because many 515
473 external consultants to company managers is a key interventions were required to get the users become 516
474 critical success factor for effective implementation reasonably proficient in using the new system. The 517
476
475
for later phases. organization developed a new innovative training 518
process that required power users from each user 519
groups to work with the new system for 4–5 weeks and 520
4. Case analysis and findings

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477 help develop training materials for peers. A work-step 521
478 Our interviews brought out that the SAP imple- instruction book with 10 pages of PowerPoint slides 522
479 mentation in the case organization (1) streamlined the was developed for each module. Users were allocated 523
480 internal business processes, (2) required innovative to appropriate training classes where they sat in front 524
481 training to ensure users could use the systems of computer terminals in a classroom facilitated by the 525

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482 effectively, (3) impacted customer needs and (4) power user on selected production data to learn how to 526
483 positively impacted the key financial parameters. We use the systems and its features. This new training 527
484 will discuss next the impact of these SAP outcomes process has been very effective and has replaced the 528
485 and the eventual contributions of the SAP system to old training process. 529
486 the strategic goals of the case organization. Another example of learning and innovation in the 530
user domain involves the design and modification of
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487 4.1. The impact of streamlined internal business ERP input and output screen for the hourly workers. 532
processes Mostof the hourly workers are not computer literate 533
488 and the multiple screen user interfaces of SAP were 534
489 Since the ERP system integrates disparate processes challenging for these workers. The implementation 535
490 across the organization, the end result is more team developed simplified task-driven screens for this 536
streamlined business processes and smooth and trans- audience. 537
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491
492 parent flow of information. In the case organization, the
493 smooth and transparent flow of information in the engine 4.3. The ERP system impacts customer needs
494 service centers improved the on-time delivery of engines 538
495 from less than 50% to between 95% and 100%. A common requirement in the engine manufacturing 539
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496 Similarly, in the engine assembly process, work and service business is ad hoc requests for a spare part. 540
497 stoppages due to unavailability of parts dropped from This happens every time an airplane has engine problem 541
498 several stoppages per month to an average of 1/2 per and local diagnostics reveal a part failure that needs 542
499 month. Also, the inventory is better managed now with replacement. Prior to the deployment of the ERP 543
500 on-hand-and-available rate improving from 60–70% to system, there was no way to directly track and locate the 544
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501 95%. In short, the streamlining of business processes by exact warehouse in which the required spare part is 545
502 the ERP system has drastically improved productivity located, hence, customers had to call each warehouse 546
503 and driven efficiency. Furthermore, the ability to access individually until the part was located. This process 547
504 correct and consistent data in a timely manner has led to took a significant amount of time and the delay costs 548
505 improved human resource planning, better investment were considerable. Today however, the ERP system 549
spending and higher quality decision making. shows every warehouse where each spare part is
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506 550
located, and this allows the customer to select and order 551
507 4.2. The ERP system usage requires learning and delivery of the part from the nearest warehouse, thus 552
training innovations improving the delivery time on spare parts. Similarly, 553
508 the implementation of the ERP system in the engine 554
509 The end-user training process developed by the service centers has streamlined the engine overhaul 555
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510 SAP business process consultants relied on the process leading to improved engine turn-around time to 556

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556 600
557 the customer. Thus, the impact of process efficiency in strategy, which was to increase the company’s market 601
558 this case is improved customer satisfaction. share in the after market parts and service business. 602
559 Another area that has impacted the customer is This dialog revealed the potential contributions of 603
560 quality control. In the old, legacy-based system, emp- ERP system on the strategic goals of the company. 604
561 loyees had to complete a multi-page form which was Fig. 1 illustrates how the ERP systems when combined 605
562 then sent to data processing, where it was subsequently with appropriate training in its use resulted in expected 606
563 subcontracted for data entry. It would take 4–5 weeks to benefits of error reduction and efficiency in the order 607
564 get the necessary reports and to conduct the root cause processing and order fulfillment processes that touch 608
565 analyses. Today, quality control activities and related the customer. Later, they discovered that improved 609
566 analyses are performed daily, leading to better attending decisions in inventory management and manpower 610

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567 to customers’ quality demands. planning in these processes contributed to cost redu- 611
ction, and proactive and timely service to customers 612
4.4. The ERP system impacts financial outcomes increased customer satisfaction. The cost reduction 613
568 contributed to increased profits and increased customer 614
569 The company also indicated that the cost of doing satisfaction contributed to increased sales and market 615

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570 business has been dramatically reduced. The reduction share. Similar benefits-results chains can be developed 616
571 of work stoppages, the timeliness of data availability to show the contributions of other streamlined processes 617
572 and better controls have improved corporate perfor- to the achievement of strategic goals. The benefits- 618
573 mance and promoted labor efficiencies. Also, better results chain notation of Fig. 1 is based on Boehm’s [18] 619
574 inventory and supply chain management has resulted idea of value-based software engineering. 620
575 in decreased costs. Simultaneously, the ability to make DP
576 accurate commitments to trading partners and improve
577 turn-around time has increased the after market 5. Applicability of balanced scorecard 621
578 business, thereby resulting in increased revenues. framework for ERP systems
622
579 4.5. Linking ERP systems outcomes to business Thus. far our case study has illustrated the impact 623
objectives of ERP systems on the four dimensions of balanced 624
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580 scorecard. But, our ultimate goal is to identify key 625

581 Our discussions with company personnel indicated measures in each of these four dimensions that provide 626
582 that the initial decision to replace all of the legacy a holistic view of ERP success. 627
583 systems with an ERP system was primarily based on a We viewed these examples of ERP success from the 628
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584 cost–benefit analysis for automation. In other words, balanced scorecard frame and discovered, as Table 3 629
585 the implementation objective of the ERP system was shows that the 14 success outcomes identified by the 630
586 to automate the business, which was expected to lead case organization managers fell into one or another of 631
587 to a lowered IT budget, increased efficiency of four categories of the balanced scorecard framework. 632
588 workers, reduced input error rate and more timely Thus, this case study illustrates the potential applic- 633
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589 availability of accurate and reliable information. ability of balanced scorecard for assessing ERP 634
590 However, once managers and other users learned success. 635
591 more about the new ERP system’s capabilities, they
592 recognized that improved information accessibility
593 and visibility across the enterprise allowed them to 6. Derivation of a balanced scorecard based 636
594 make more effective operational, tactical and in some ERP scorecard
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595 cases strategic decisions. This resulted in better 637

596 manpower planning, enhanced inventory control, Although these examples of success measures in 638
597 radical improvement of on-time delivery of over- the four BSC dimensions suggest the applicability of 639
598 hauled engines, and on-time delivery of spare parts. the balanced scorecard to the ERP domain, they are 640
599 Eventually, the consequential increase in customer quite incomplete in the sense there are many more 641
UN

600 satisfaction led to an unexpected change in business measures in each of the four dimensions. In addition, 642

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D. Chand et al. / Computers in Industry xxx (2005) xxx–xxx 9

OF
RO
DP
Fig. 1. A value chain illustration.
642 654
643 the granularity of these measures is uneven, and identification and selection of key ERP success 655
644 because a balanced scorecard is not just a compilation measures. 656
TE

645 of all the measures it is not clear whether each of these The search for a framework that aids in the 657
646 measures should be included in a balanced scorecard. identification and selection of ERP success measures 658
647 The objective of the balanced scorecard is to identify led us to re-examine the goals of ERP in the 659
648 and define a parsimonious set of measures that enable organization. As alluded to in the earlier part of this 660
EC

649 management to understand the state of the organiza- paper that the decision to replace all the legacy 661
650 tion in order to control and steer it. In other words, we systems with an ERP system was made by the CEO 662
651 need a framework that systematically guides in the and the CIO, and apparently the case for the ERP 663
652 identification and selection of the ERP success system was made on cost justification of replacing the 664
653 measures. We will now attempt to define an ERP 1000 loosely connected legacy systems with an 665
RR

654 balanced scorecard framework that will guide the enterprise-wide system running on one platform. 666

Table 3

Process dimension Customer dimension Finance dimension Learning and innovation

Average work stoppage Percent on-time delivery Inventory availability rate Learning from ERP implementation phases
CO

per month of overhauled engines

Data Integrity Percent on-time delivery Engine assembly cost Implementation knowledge transfer
of spare parts
Internal controls Customer satisfaction Training method effectiveness
Data standardization
Data timeliness
UN

Data availability

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666 714
667 Thus, for this organization, the initial objective of the level focuses on operational benefits of ERP systems, 715
668 ERP system was largely to automate the business with the informate level focuses on tactical decision 716
669 one integrated system, and success was conceived in making outcomes impacted by an ERP implementa- 717
670 terms of reduction in the IT budget and the increased tion, and transformate level looks at strategic impacts 718
671 productivity and efficiency of the internal workers. of ERP implementation. In Table 4 we define the goals 719
672 The business partners were assigned the respon- of the ERP system in each of the 12 cells of our 720
673 sibility to implement the components of the ERP balanced scorecard based ERP benefits framework. 721
674 system using the phased implementation approach These goals help to develop success measures by 722
675 described earlier. As the business employees learned raising the key questions necessary to achieve those 723
676 the new system and in many cases new or revised goals and assigning a metric to each question [19]. 724

OF
677 business operations, the visibility of data across the We will conclude this section with a discussion 725
678 whole business process opened up the opportunity for of the goals of the 12 cells of our ERP balanced 726
679 managers to make more effective decisions. Thus, the scorecard. 727
680 initial ERP objective of automating the business
681 processes changed to more business-oriented objec- 6.1. Automate/process cell

RO
682 tive of ERP system of improved management decision 728
683 making. The goal of the ERP system in this cell is to make 729
684 In summary, the ERP implementation at the case the business processes efficient. A key process 730
685 company began with the goal of automating business efficiency measure is the throughput of process. In 731
686 processes in a way that could lead to a seamless our case study, if we look at the engine servicing 732
687 accumulation of consistent data across the company. process, a throughput measure is the average number
DP 733
688 After workers and managers become comfortable with of engines overhauled each month. Thus, in the 734
689 the new system, they discovered that ERP system also construction of an ERP balanced scorecard the 735
690 served to inform affected parties across the value- throughput of each business process served by the 736
691 chain, thereby improving decision-making at all ERP is a potential success measure of an ERP system. 737
692 levels. The managers of the case company explicitly Efficiency of a process can also be measured in 738
693 noted that the surprise benefit of the ERP system terms of reduction in input resources, often quantified 739
TE

694 implementation was the impact of improved informa- in terms of removal of waste from the system. In our 740
695 tion visibility across the entire value-chain. Such engine servicing process, reduction of work stoppage 741
696 visibility enabled better decision making across from several stoppages per month to just one-half per 742
697 business processes and the ability to track engine month is an example of efficiency measure. Since 743
EC

698 parts in their global warehouses expanded the firm into automation of a process implies that the worker is not 744
699 after-parts business, leading to higher valuation of the productive when the system is down, the IT measures 745
700 company and addition of new customers with new of system availability and system uptime become key 746
701 needs. The ability of the new ERP IT infrastructure to measures in the ERP balanced scorecard. In summary, 747
702 accommodate these organizational transformations in process throughput, process efficiency and systems 748
RR

703 a routine manner suggested to us that Zuboff’s [9] availability/system up time are key metrics for 749
704 notion of transformate should be included to paint a measuring the success impact of ERP systems 750
705 more compete picture of how ERP systems can
706 positively affect the ‘success’ of an organization. 6.2. Automate/customer cell
707 Thus, combining Zuboff’s three levels, automate, 751
708 informate and transformate, with the four balanced The goal of the ERP system in the automate/
CO

752
709 scorecard dimensions of benefits generates a very customer cell is to meet customer needs more 753
710 useful 12 cells framework to explain, understand and effectively. It should be noted that process efficiency 754
711 identify the direct and indirect contributions of ERP achieved through automation might not automatically 755
712 implementations. impact the customer positively. This cell is suggesting 756
713 This new framework partitions the ERP imple- that for identifying success measures you need to 757
UN

714 mentation benefits into three levels. The automate understand the customer needs and check which of 758

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Table 4

Process Customer Finance Innovation

Automate
Operational benefits
Goal Improve process efficiency Meet current needs of Reduce cost Increase productivity
customers more efficiently
Outcomes Error/rework reduction; Improved response time; Reduced Power user involvement
faster processing; consistent reduced customer inventory-carrying in user training for
data; reduction in processing complaints; reduced cost; lower operational tasks
time; increase in throughput errors labor cost

OF
Informate
Tactial benefits
Goal Improve tactical Identify and meet customer Increase revenues Make workers more
decision making needs proactively effective decision makers
Outcomes Improved work scheduling; Better customer expectation Better forecasting; Training for access of
improved work assignment; setting; improved customer increase market enterprise information;

RO
improved access to information; satisfaction; improved share training for decision
improved quality management; engine repair scheduling making skills; worker
improved control and delivery empowerment for taking
actions
Strategic
Strategic benefits
Goal

Outcomes
Adapt to radical environment
changes routinely
Technology changes;
DP
Meet new customers needs
or new needs of customers
Increased customer base;
Improve market
value
Growth
Absorb radical
change routinely
Change management
regulatory changes; partnership with customer capitalization; processes; breadth and
competition changes new markets broader horizon

758 777
TE

759 those needs is directly impacted by the automation of 6.4. Automate/learning and innovation cell
760 the process. In particular, for those processes that 778
761 touch the customer, the systems response time, such as The goal of the ERP system in this cell is to make 779
762 meeting the commitment date, becomes a key measure the employees competent users of the system. Thus, 780
EC

763 in this cell. In our case study, the on-time delivery of the quality and effectiveness of the training processes 781
764 spare parts, which improved dramatically after the affects the employee ability to use the new/revised 782
765 implementation of SAP system, is an example of process and the new system, a success measure in 783
766 response time. automate/learning cell is training effectiveness. In our 784
case study, innovative involvement of power users in 785
RR

6.3. Automate/finance cell the creation and delivery of training leading to refined 786
767 training methods was offered as an example of success 787
768 The goal of the ERP system in the automate/ measure that fall in this category. 788
769 finance cell is to reduce cost and improve ROI. In our
770 case study, the justification for the ERP system was 6.5. Informate/process cell
771 made on the anticipation that the cost of IT budget for
CO

789
772 current service level will reduce. This measure gets The goal of the ERP system in this cell is to help the 790
773 muddy because it is linked with the level of service. employee and management make improved decisions. 791
774 More appropriate cost reduction measures for ERP They can be operational, tactical or strategic. In our 792
775 systems are the cost of executing the business process case study, several examples of improved decision 793
776 before the ERP systems and then after the ERP areas were noted, such as man power planning, quality 794
UN

777 system. management, inventory management and supply-side 795

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12 D. Chand et al. / Computers in Industry xxx (2005) xxx–xxx

795 835
796 management. Appropriate measure can be created tion of the Sarbanes-Oxley Act in the PeopleSoft 836
797 based on what questions the organization considers to financial module at another site. The implementation 837
798 be key. For example, in the inventory management of the Sarbanes-Oxley Act in PeopleSoft financial 838
799 area, inventory availability rates were identified as a module is an example of ERP system facilitating 839
800 measure of success. business agility. 840

6.6. Informate/customer cell 6.10. Transformate/customer cell

801 841
802 The goal of the ERP systems in the informate/ The goal of the ERP system in the transformate/ 842
803 customer cell is to improve customer satisfaction. customer cell is the transformational capability of the 843

OF
804 There are several indirect measures to assess this, such organization to meet the new needs of the customers 844
805 as increase in repeat customer and meeting customer and the needs of new customers. This also includes 845
806 expectations. In more service oriented businesses, strategic partnering with the customers. By strategic 846
807 direct measures are customer satisfaction surveys. partnering we mean the organization goes beyond 847
sharing risks and rewards to anticipating customer 848

RO
6.7. Informate/finance cell needs, shaping customer needs and adapting to new 849
808 needs of existing customers. A hypothetical example 850
809 The goal of the ERP system in the informate/ is if the engine over hall process showed some stress 851
810 finance cell is to improve ROI by increasing revenues. faults in certain type and age of engines, the ERP 852
811 In our case study, the ability of the organization to system can help the organization to share this finding 853
812 effectively address customer need for spare parts and with all the other customers owning these engines and
DP 854
813 meeting commitment dates for engine overhaul offer solutions to correct potential future problems. 855
814 resulted in more than higher customer satisfaction
815 but an expansion in the after market parts and engine 6.11. Transformate/finance cell
816 over hall business leading to the acquisition of new 856
817 service centers and more warehouses. In other words, The goal of the ERP system in the transformate/ 857
818 the ERP system has impacted enhanced revenue finance cell is to facilitate market valuing and growth. 858
TE

819 opportunities and improved market positioning. Financial measures in this cell are high market mul- 859
tiples, creating options through research and devel- 860
6.8. Informate/learning and innovation cell opment and market awareness. 861
820
EC

821 The goal of the ERP system in this cell is to make the 6.12. Transformate/learning and innovation cell
822 employees more competent decision makers. Once 862
823 again the effectiveness of the training processes is the The goal of the ERP system in the transformate/ 863
824 key success measure but the context of training goes finance cell is to facilitate continuous evolution and 864
825 beyond learning how to use the system to learning how adaptation. The focus of training and innovation is on 865
RR

826 to exploit data in the ERP data warehouse. It may also learning how to discover new markets and engage in 866
827 involve the use of modeling and decision support tools. continuous market evolution. Training moves from 867
content learning to knowledge sharing. 868
6.9. Transformate/process cell
828
829 The goal of the ERP system in the transformate/ 7. Summary and conclusion
CO

830 process cell is to facilitate business agility. Facil- 869

831 itating business agility means the ERP system can In this section we will summarize the value and 870
832 be adapted in a routine manner to new process contribution of this new ERP benefits assessment 871
833 requirements caused by changes in business require- framework, called an ERP scorecard. 872
834 ments. In our case study, business agility was not First, Booth et al. [7] noted that no analytic 873
UN

835 tested but we have been observing the implementa- framework exists to examine the potential benefits 874

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874 922
875 after the ERP system is successfully implemented and benefits in terms of meeting customer needs proac- 923
876 put in use. The 12 cells ERP scorecard derived and tively, improved tactical decision making, decreasing 924
877 presented in this paper addresses this gap in the ERP costs and increasing revenues, the organization saw an 925
878 research literature. impact on the after market parts business. This led to a 926
879 Second, Davenport [11] observed that there are change in strategy and today the after market parts 927
880 different types of benefits and some types are likely business is fetching 60% of the revenue of the case 928
881 to arise before others. Specifically they suggested organization. We saw here the evidence of transfor- 929
882 that improved transactional processes and common mate level indicators. 930
883 data appear to precede benefits associated with Fourth, although the literature suggests that the 931
884 improvements in management and decision making. balanced scorecard may be the appropriate approach 932

OF
885 Our ERP scorecard makes Davenport’s observations for defining the success of ERP systems, only 933
886 explicit. The automate level and the informate level Rosemann and Wiese [8] have attempted to concep- 934
887 benefits of the ERP scorecard capture the improved tually apply the BSC approach for managing ERP 935
888 transactional processes benefits and the impro- systems. As discussed in the literature review section, 936
889 ved decision making benefits, respectively. More Rosemann and Wiese have a limited view of ERP 937

RO
890 significantly, the ERP scorecard goes beyond sugge- system success. We demonstrated through the case 938
891 sting that there are two types of ERP benefits. organization that ERP systems impact all the four 939
892 Specifically, it introduces the transformate level dimensions of balanced scorecard at the organization 940
893 benefits, shows the operational and tactical benefits level, and thereby, they are capable of contributing to 941
894 in all four balanced card dimensions and provides the business strategy of the firm. Our ERP scorecard 942
895 goals that define the different types of benefits an shows that the success of ERP implementations and
DP 943
896 organization can expect from ERP use. operations depends on the firm’s intention to use the 944
897 Third, like Davenport, Markus and Tanis [4] also ERP system to automate, informate or transformate 945
898 suggest that ERP benefits should be measured at the organization. 946
899 different points in time. It is easy to see that the first Fifth, the new ERP framework not only fills the gap 947
900 benefits of an ERP system are those related to process in the ERP research literature, we also saw its imm- 948
901 productivity improvement, triggered by factors such ediate benefit to the case organization. For example, the 949
TE

902 reduction in errors, timely availability of consistent case organization is very proud of its innovative and 950
903 information, etc. As noted earlier that these soft effective ERP training program. Our model brought out 951
904 improvements contribute to organizational measures, that their training program is designed to only address 952
905 such as cost reduction, increased worker satisfaction the automate-level benefits, and it needs to be enhanced 953
EC

906 and increased customer satisfaction. As the workforce extensively to effectively support the informate level 954
907 becomes more familiar with the ERP software and its and transformate level benefits. 955
908 reach across functional boundaries, the benefits that In summary, our innovative integration of Zuboff’s 956
909 result from improved tactical decision making become [9] notions of automate, informate and transformate 957
910 feasible. This reasoning suggests that informate level with the balanced scorecard dimensions into a complete 958
RR

911 benefits can only occur after the organization has and comprehensive ERP scorecard has generated a new 959
912 achieved automate level benefits. Theoretically, this methodology for identifying the success measures by 960
913 ordering of benefits is valid but in practice we found analyzing the goals of each of the 12 cells for that 961
914 that any point in time an organization is achieving organization. As we continue to operationalize this ERP 962
915 informate or even transformate level benefits in one scorecard at the firm level, we hope to develop industry 963
916 part of the organization and automate level benefits in specific patterns that can be quickly adapted for
CO

964
917 another part of the organization. assessing the benefits of ERP systems. 965
918 In our case study, we found that ERP is a journey
919 [21] with different levels of maturity in its use and
920 goals in different parts of the organization. For Uncited references
921 example, the warehouses in our case organization are 966
UN

[20,22,23]. 967
922 perfectly happy with automate and informate level

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1005
967 Acknowledgements [10] S. Shang, P.B. Seddon, A comprehensive framework for 1006
classifying the benefits of ERP systems, in: Proceedings of 1007
968
the Sixth Americas Conference on Information Systems, Long 1008
969 The research team is deeply indebted to Bentley Beach, CA, 2000, pp. 1005–1014. 1009
970 College for (1) providing an initial research grant that [11] T.H. Davenport, Mission Critical: Realizing the Promise of 1010
971 brought together our cross-cultural research team to Enterprise Systems, Harvard Business School Press, Boston, 1011
972 address this important research problem, (2) helping MA, 2000. 1012
973 the team in finding the research site and (3) the [12] R.S. Kaplan, D.P. Norton, The Balanced Scorecard: Translat- 1013
ing Strategy into Action, Harvard Business School Press, 1014
974 continuing support and stimuli in terms of opportu- Boston, MA, 1996. 1015
975 nities to present our thinking and receive feedback at [13] W. van Grembergen, R. van Bruggen, Measuring and improv- 1016
976 internal informal gatherings and formal workshops ing corporate information technology through the balanced 1017

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977 during this research effort. scorecard technique, in: Proceedings of the Fourth European 1018
Conference on the Evaluation of Information Technology, 1019
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981 56–67 (Spring). (Ed.), IT Evaluation Methods and Management, Idea Group 1026
982 [2] A. Bhattacherjee, Beginning SAP R/3 Implementation at Publishing, Hershey et al., 2001, pp. 171–184. 1027
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DP
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