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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 04/18/23

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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

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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.

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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).

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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.

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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.04/18/23 6

The Balanced Scorecard

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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).

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Balanced Scorecard for Measuring ERP Performance

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Success in complete usage of the ERP System

Internal Customer Perspective

Information Availability Perspective

Enhanced Processes Perspective

Savings Perspective

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. 04/18/23 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).

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Problem Statement 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:-i. To establish the benefits of using ERP Systems as

perceived by users in Supermarkets in Nairobi, Kenya.ii. To evaluate the performance of the ERP System as

perceived by users in Supermarkets in Nairobi, Kenya.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Relative Importance of Perspectives

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Rank Perspective Mean Standard Deviation

       

1 Savings 1.8571 0.7552

2 Enhanced Processes 1.806 0.7273

3 Information 1.7893 0.7384

4 Internal Customer 1.661 0.6046

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

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Factor Analysis: Table 2

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Ranking Perspective FactorFactor Score

       1 Savings Risk reduction 0.86052 Internal Customer Consultation 0.812

3Information & Enhanced Processes Information Access 0.7973

4 Internal Customer Support 0.7545 Enhanced Processes Efficiency 0.7475

6 SavingImproved Inventory Management 0.746

7 Information Empowerment 0.74058 Internal Customer Usability 0.72039 Saving Improved Performance 0.713

10 Saving Cost cutting 0.703611 Information/Enhanced Processes Technology 0.68412 Enhanced Processes Effectiveness 0.6607

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.

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