Strategic Enterprise Management Systems: new directions for research

1. Management Accounting Research 15(2004) 225-240 Strategic Enterprise Management Systems:new directions for research Stan Brignall a , Joan Ballantine b a Aston Business School, Aston University, Aston Triangle, Birmingham B4 7ET, UK b Queens University Belfast, Belfast, UK 제조통합자동화 연구실박 종 경 Received 21 May 2003; accepted 13 October 2003 2004년 6월 22일

2. Contents Strategic Enterprise Management Systems:new directions for research Aston Business School Birmingham, UK 1. Introduction • Research objective and conceptual theorization • What are Strategic Enterprise Management Systems? • Pettigrew’s “context, content, process model”for successful organisational change • The context of change • The content of change • The process of change • Conclusions and research implications Coming Up Short on Nonfinancial Performance Measurement Wharton School of the University of Pensylvania, in Philadelphia 1. Introduction • Causal model ( fast food chain 사례 ) • Performance Measurement My concerns

3. Management Accounting Research 15(2004) 225-240 Strategic Enterprise Management Systems:new directions for research Stan Brignall a , Joan Ballantine b a Aston Business School, Aston University, Aston Triangle, Birmingham B4 7ET, UK b Queens University Belfast, Belfast, UK Received 21 May 2003; accepted 13 October 2003

4. Abstract A world is obsessed with performance A structured solution to improving performance -> Strategic Enterprise Management Much has been written about how to measure performance, Little is known about the interaction between - Performance measurement and management(PMM) - The many ways in which organizations strive to improve their performance. This paper studies the interrelationships among - SEM systems, PMM and Organizational change programmes Organizational change programmes <- Pettigrew’s “context, content, process” model Develop a number of research questions to be explored in future research. Pettigrew : University of Warwick/ Warwick Business School (top 3 MBA in UK) Professor

5. 1. Introduction Performance measurement and the assessment of relative success -> Can affect theallocation of resources, and the fates of institutions and individuals. The drivers : continuous improvement <- Learn and change are continuous. -> to create more agile, knowledge-conscious and creative organizations in the never-ending search for a sustainable competitive advantage. Successful change programmes ( performance drivers ) : - new leadership, clear objectives, a new strategy, - improved human resource management practices, - process changes, - IT/IS investment (e.g. ERP or SEM systems) However, the links between PMM and these change techniques are only now beginning to be systematically studied, yet their alignment may be crucial to competitive success.

6. 1. Introduction The findings of such studies (continuous improvement) should be directly relevant to the success or failure of ERP systems and SEM systems.

7. 2. Research objective and conceptual theorization Stakeholder theorists advocate a pluralistic approach to performance measurement so we use stakeholder theory to explore the context within SEMS, given that SEMSs recognise multiple stakeholders. Use the insights of contingency theory => Define the relationships between contextual factors and structural characteristics. The complementarities approach has emphasised that performance may be improved in many ways involving many disciplines and functions. Indeed, the notion of performance is multi-faceted and what constitutes “good” performance will vary from stakeholder to stakeholder.

8. 2. Research objective and conceptual theorization The objective of this research note is to explore the relationship between PMM and SEM within Pettigrew’s “context, content, process” model for successful organisational change and performance improvement. The three parts of Pettigrew’s model are used to help identifypotential problems and possible solutions in the areas of SEM design, implementation and use. Given the complexity of the relationships between PMM and SEMSs, we draw onstakeholder, institutional, contingency and complementarities theories to explorethese issues and developa series of research questions.

9. 3. What are Strategic Enterprise Management Systems? The vendors of ERP systems claim they provide “an integrated solution for planning, executing, and controlling business processes horizontallyacross the value chain. . . . SAP R/3 (the market leader) integrates processes such as sales and materials planning, production planning, warehouse management, financial and management accounting, and HR management” (Norton and SEM, 1999, p. 38). SEM “. . . will extend these principles vertically to supportstrategic management processes, such as strategic planning, risk management, performance monitoring and value communication” (ibid.). Its vendors claim that “It allows a two-way flow of information: corporate strategists can monitorperformance continually using feedback from the business execution systems, and adjustments to the strategy can be driven down tothe operational level via new targets and KPIs” (Norton and SEM, 1999, p. 38).

10. 3. What are Strategic Enterprise Management Systems? For a system to qualify as an SEM system we believe that it should have the following attributes (to support executive strategic decision-making). 1. Be built on an ERP system, that is, a common database that integrates management information across all functions and disciplines in the organisation. However, ERP systems have been more concerned with transaction processing than decision support. 2. SEMSs rely heavily on the use of data warehousing tools, where the data warehouse acts as a repository and data transformation tool to perform company or activity specific consolidations such as activity-based management cost pools. 3. SEMSs have a range of integrated applications and tools including ABM; profitability, planning and simulation; workforce analytics; customer relationship management; shareholder value analysis; the balanced scorecard and reporting and analysis tools. 4. Have both an internal and an external market focus.

11. 3. What are Strategic Enterprise Management Systems? SAP’s BSC solution for SEM(Source: Norton and SEM Product Management, 1999)

12. 3. What are Strategic Enterprise Management Systems?

13. 3. What are Strategic Enterprise Management Systems? 이니시어티브 측정지표 타깃 재무적시각 목표 재무적으로 성공하기 위해 우리는 주주에게 어떻게 보여야 하는가? 측정지표 측정지표 이니시어티브 이니시어티브 타깃 타깃 고객시각 내부 비즈니스 프로세스시각 비전과전략 목표 목표 비전을 달성하기 위해 우리는 고객에게 어떻게 보여야 하는가? 주주와 고객을 만족시키기 위해 우리는 어떤 비즈니스 프로세스에 탁월해야하는가? 전략적목표 측정지표 학습과 성장시각 행동지침 목표 우리의 비전을 달성하기 위해 변화하고 개선하는 능력을 어떤 방법으로 길러야 하는가? 자료원: Robert S. Kaplan and David p. Norton, Using the Balanced Scorecard as a Strategic Management System (Harvqrd Business Review, Jan-Feb 1996), p.76

14. 4. Pettigrew’s ‘context, content, process model’ for successful organisational change Pettigrew et al. (1992) define contextas the “why and when” of change, and differentiate between the inner and outer contexts. Outer context refers to aspects such as prevailing macro economic circumstances, the particular competitive environment faced by an organisation and social and political environments, whereas inner context is concerned with internal influences such as organisational resources, capabilities, structure, culture, and organisational politics.

15. 4. Pettigrew’s ‘context, content, process model’ for successful organisational change Contentis defined as the “what” of change and is concerned with the areas of transformation and the tools and techniques used to effect change. Finally, processis described as the “how” of change and refers to actions and interactions of the various stakeholders as they negotiate proposals for change. We will examine a variety of issues relating to SEMS design, implementation and use using a range of possible explanatory theories under the three parts of Pettigrew’s context, content, process model.

16. 5. The context of change 5.1. Institutional stakeholders The use of a contingent approach to information systems design may help PMSs meet the needs of multiple stakeholders (shareholders, customers, employees). Institutional theory (제도이론) recognises the importance of relative bargaining power in determining whose interests will predominate in an organisation and the consequent effects on what aspects of performance are measured, reported and acted upon. The previous PM research and SEMS design is mainly one of instrumental rationalism (합리주의).

17. 5. The context of change In a recent paper, interrelationships among the three direct institutional stakeholders may influence the balance and integration of performance information in an organisation, or lead to its de-coupling. Difficulties may be expected in integratingthe various parts (such as activity-based management, value-based management and the Balanced Scorecard) and in balancing the interests of the key stakeholders across the parts. Research question 1. What insights do institutional and stakeholder theory offer to the issues of integration and balance of PMSs when designing and implementingSEM systems?

18. 5. The context of change 5.2. Contingent variables relevant to the design of PMSs and SEMSs There are two classes of contingent variables that should affect the design of integrated costing and performance measurement systems. The first of the two classes are variables related to the product and business lifecycle (e.g. the competitive environment, business mission and generic strategy type —aspects of Pettigrew’s outer and inner “context”). The second class of variables are those related to a business’s production or service delivery process type (e.g. professional, shop or mass service). SEMSs will need to vary among organisations and change over time as the organisation and its products/services move through their lifecycle. Research question 2. To what extent are SEM systems customised to reflect an organisation’s external and internal contextual variables, such as its competitive environment, business mission and strategy, process type, and so on?

19. 6. The content of change The vendors of SEMSs are providing a bundle of tools and techniques (e.g. the Balanced Scorecard and Activity-Based Management). Whilst SEMs vendors claim they are promoting industry best practice by providing a bundle of tools and techniques within SEM, their adoption is likely to be problematic in practice. For example, there are various problems with the “chains of cause and effect” in Balanced Scorecard (BSC), Strategy Maps and the top-down management style of Activity-Based Costing (ABC), but more importantly they are not applicable to all organisations in all circumstances. Research question 3. Which of the various tools and techniques have been adopted by companies, and why, and what problems or conflicts have arisen when doing so?

20. 7. The process of change 7.1. The complementarities approach Milgrom and Robert’s (1995) main complementarity propositions, which might be relevant to future SEMS research, are: • Higher performing organisations will not just be doingthe right kinds of thingsbut combining more of them and doing so differently. • Superior performance is to be gained not by changingindividual parts in isolation, but by simultaneously combiningall the elements together. • Practices associated with positive performance when combined with their complements may be found to have negative effects when taken individually. Complementarities theory implies innovating in sets, but there are many detailed research questions that flow from this. For example, how are the initial sets (in a SEMS) chosen and why? What follows the initial change sequence in successful SEMS implementations, and why?

21. 7. The process of change 7.1. The complementarities approach The complementarities approach recognises the potentially mutually reinforcing effect of sets of factors in explaining performance differences. Accordingly, such research would need to consider the complementarities among the various applications of the SEMS (e.g. BPS, CPM, SRM) and those performance improvement techniques in place in the organisation. Research question 4. In line with complementarities theory, do successful SEM adopters implement multiple applications of an SEM system simultaneously as opposed to a modular fashion?

22. 7. The process of change 7.2. Stakeholders and institutions ERP and SEM systems can be seen as a way of promoting transparency within an organisation, but this runs counter to de-coupling in institutional theory mentioned in the section on context above. A critical issue is: transparency to whom? Who controls access to the information of the SEMS (or ERPS)? Is transparency always desirable from the point of view of senior management? Strategic decision-making has long been regarded as a key function and prerogative of senior management, so the sharing of that information with other stakeholders via a SEMS could be seen as a serious weakening of senior management power. It may be that SEMSs are in the process of becominginstitutionalised (i.e. standardised and perhaps ritualised). Research question 5. To what extent are the various applications of an SEM systemde-coupled and what are the implications of this for the integration and balance of the performance measurement system?

23. 8. Conclusions and research implications The process questions raised above and the complex issues discussed in the earlier context and content sections imply that future research on what determines the success of SEM initiatives might usefully combinetwo research methodologies. While this paper has considered a number of issues relevant to the successful implementation of SEMSs, it has given scant coverage of other issues that have been shown to be relevant to the success of ERP systems. For example, the paper has not considered the potential problems of - Integrating ERP, SEM and other systems, - The problems caused by tight implementation schedules, - The need for data standardisation and - The time-consuming and costly nature of systems implementation.

24. Harvard Business Review November(2003) 88-95 Coming Up Shorton Nonfinancial Performance Measurement Christopher D. Ittner and David F. Larcker Christopher D. Ittner is a professor of accounting at the Wharton School of the University of Pennsylvania, in Philadelphia. He is coauthor ofLinking Quality to Profits: Quality-based Cost Management(ASQC Press, 1994). David F. Larcker is the Ernst & Young Professor of Accounting at Wharton.

25. 1. Introduction Field research : more than 60 manufacturing and service companies, 297 senior executives To our surprise, - Most companies have made little attempt to identifyareas of nonfinancial performance. - Nor have they demonstrateda cause-and-effect link between improvements in those nonfinancial areas and in cash flow, profit, or stock price. Instead, many companies seem to have adoptedboilerplate versions of non financial measurement frameworks such as Kaplan and Norton’s Balanced Scorecard, Accenture’s Performance Prism, or Skandia’s Intellectual Capital Navigator.

26. 2. Causal Model Which Measures Matter : a successful fast food chain quality new hires shopping experience Customer satisfaction education Selection And staffing timeliness work experience frequency supervision retention Customer buying behavior support Emploee satisfaction referral fairness each outlet over time empowerment Sustained profitability better than competition accountability Employee- added value growth earnings Shareholder value $ free cash flow

27. 3. Performance Measurement • Mistakes • Not Linking Measures to Strategy • Not Validating the Links • Not Setting the Right Performance Targets • Measuring Incorrectly • Doing It Right • Develop a causal model • Pull together the dataExtend to any Information Systems (purchasing, manufacturing control, customer service) • Turn data into informationAnalyze the data • Continually refine the model • Base actions on findingsAct on the conclusions • Assess outcomes : Do “postaudits”

28. My Concerns Successful implementation of SEMSs (vertical integration) - Performance measurement and management (PMM). - The many ways in which organizations strive to improve their performance. - Continuous improvement.