Information Technology now a day is growing in rapid pace. Almost every sector and the activities in this world are being attached with the Information Technology. Business organisations cannot survive in this competitive world without using some form of technology however, they must have to use technology strategically in order to keep their existence for a long term. In this essay I am going to present the case of one of a large, power engine manufacturing organisation ie, Rolls Royce. This essay will discuss about the scenario of Rolls Royce with its system before the implementation of Enterprise Resource Planning (ERP) system, why the organisation felt need for implementation of ERP and what are the business advantages they are able to get with the strategic implementation of ERP and how.
Introduction:
Today’s business organisations find themselves in a more vibrant and competitive environment. Business leaders have responded to these by laying more emphasis on technology so as to continue with smooth and efficient running of businesses and gaining competitive advantages.
Computer based information systems have been very popular in recent years, organisations like Rolls Royce have stake most of the business operations on Enterprise Resource Planning (ERP).
ERP is an information system that integrates financial, material and human resources of an organisation, it also facilitate information flow between different business functions and connection to external stake holders.
This paper will seek to desert the implementation of ERP by Rolls Royce, understand the business needs of ERP, and last but not the least the aftermath implementation of ERP.
Background of Rolls Royce:
Rolls-Royce is a multinational company which manufactures power solutions for the customers in aerospace, marine and energy markets. The founders of this company are Henry Royce and Charles Rolls. The brand name Rolls Royce came after their surnames. The company came into existence about 100 years before. It is first established with the intension of manufacturing the best car in the world. Later on Rolls Royce organisation slowly expands its business in various markets, its name and brand was extended and now it has its manufacturing industries situated in 20 different countries and has its customers in more than 120 countries. [1]
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Now it has became one of the world’s largest power engine manufacturing companies. One of the main reasons behind their success is the strategic use of technology to compete in this business world. Though its main headquarter is in UK 45 % of their employees are based outside the UK. They are running a civil aerospace business from UK with emerging capabilities in Germany and the US. They are growing up day by day. All the transactions, interdepartmental coordination, coordination with their supplier, consumers and customers are maintained well and effectively and it is possible for them only by using modern technologies to communicate, gather and process the information. [Rolls-Royce Group plc, Annual report 2009].
They look forward to their customers need for the next 30 to 40 years and do research in the technology to stay competitive. They are having good market strength with many products and many customers. It produces goods as well as provides services to its customers in fact, services are the most important part of their business it accounts for nearly above half of their revenue every year. So there is the great importance of real time data management which enables them to be predictive and they can immediately react to the issues related to the engine that comes for the service. [2]
Information System:
Information Technology (IT) and Information System (IS) are part of each other. Information system is the computerized program which collects data, processes it and gives the useful information. This information can be used for various purposes to add up the value in the business. It can be used for report generation, planning, decision making, business operation and which further will lead the organisation to obtain competitive advantage.
Figure: Strategic Framework [3]
Information technology has become one of the largest components where organisations are investing their capital. Most of the business organisation are wisely investing large amount of their money in information systems. The wise choice of investment can outperform competitors and if it was the poor choice then it will be nothing more than wasting their valuable capital. [Laudon (2006)].
Today the world is getting smaller and smaller this is because of the information technology and hence competition in the businesses is rising day by day. So to gain the competitive advantage, strategic use of information system is the must no matter it is smaller business organisation or the larger. According to Brooks (2003), adding value to the business means to extend products, decrease the cost, improve the quality of services and products and so on. The reason for adding value to the business is to attract more customers, and keep organisation in a better place in the market. The use of Information technology and information system has become the efficient and more common way for adding value to the organisations of today’s business world. Only the use of IT system is not sufficient to add value and to take competitive advantage of it, the strategic use of IT System is the most. According to WU J (n.d.), “ERP system is such a strategic tool, which integrates information and information-based processes within and across functional areas in an organization”.
Rolls Royce was using information system since long. It was using 1500 systems before using ERP (SAP R/3), many of those systems were built internally by Rolls-Royce in last two decades. Those systems were costly to operate and not easy to maintain. They didn’t give precise and steady result because these systems were not centralised and using the values from different systems will give inconsistent result. Looking at all these problems Rolls-Royce formed a partnership with electronic data services (EDS) in 1996 and EDS was responsible for the development of ERP for Rolls Royce [Yusuf Y, Gunasekaran A and Abthorpe MS (2004)]. Though there are many implementation difficulties such as cultural difficulties (Training of new system to the employees), business difficulties (modification of working to fit in the ERP) and technical problem (transferring of previous records into the new system and to reach the consistent stage), Rolls Royce needs to implement the ERP because they knew the necessity of the centralised, robust, accessible and accurate system to gain the competitive advantage and to improve their supply chain.
ERP combines all departments together into a single system in a single computer. It uses internet technology and it can be accessed by authorised department and authorised personnel anytime from anywhere so interdepartmental communication can be done easily and efficiently and hence optimizes the time and the cost.
Impacts of ERP Implementation in Rolls Royce:
According to the annual report (2009) of Rolls Royce “Our process excellence and improvement journeys continued throughout 2009. Our joint venture engine overhaul facilities, Hong Kong Aero Engine Services Limited (HAESL) and Singapore Aero Engine Services Limited (SAESL), were the latest to benefit from the rollout of the enterprise resource planning (ERP) and SAP process systems”. Rolls Royce has implemented and is making use of information systems very efficiently and effectively that is why they are in the apex of success today. Rolls Royce is making use of ERP for communication, decision making, to manage their business operations, improve value chain, to reduce competitive forces and as a whole to gain competitive advantage.
We will now discuss one by one how Management Information System (MIS) like ERP will help the business organisation to gain the advantages maintained above and we will see the impact of using ERP in the Rolls Royce.
Communication
One of the critical factors which lead the organisation towards its success is the effective communication (intra-organisation and inter-organisation). Employer and managers of today’s business organisation must have to be familiar with the effective communication techniques for the success of the organisation. And effective communication has become an important tool for the organisation’s success. ERP boost the communication between the functional boundaries within the organisation. Rolls Royce is efficiently and effectively using this advantage provided by ERP. Rolls Royce is also a service provider to its customers. When customers demand services to be delivered in more timely and perfect way, organisations must overcome functional boundaries to meet this challenge.
Rolls Royce is widely spread in different countries and all of its organisational functions are not carried out in a single place. ERP helps the effective communication within different departments and between their suppliers, customers as well as with their partner organisations. And this obviously adds value to the organisation by reducing the research time, providing the accurate and the optimized reports and minimizing the communication cost. Let’s take an example, Rolls Royce uses Suppliermanager website to pull together all the information their supplier needs. They are using SABRe which shows the external part of the Rolls-Royce Quality Management System, and is applicable to all its suppliers or partners who are providing products or services that effect upon Rolls-Royce and its customer requirements. [4] By using these strategy of using information system and providing the information, Rolls Royce is minimizing the cost and time for the communication.
Decision Making
Decision Making is one of the important factors in every business organisation. Again the decision is made with the help of report generated by the Information System. One of the major advantages of using good information system like ERP is that it increases the speed of decision making within an organisation and provides the circumstances to make faultless decisions in strategic, managerial as well as operational level.
Let’s take the case of Rolls Royce, the legacy systems used in Rolls Royce did not provide accurate, consistent and accessible data that was required for good and timely decision-making and performance assessment. Those old systems mostly did not fit to the modern manufacturing environment. But in the ERP system a data warehouse (integrated collection of data) is created. Data is stored centrally and is extracted from different databases. The data is monitored, edited and then finally standardised for future use. The data is kept in a logical and user friendly format. It also allows nontechnical users to queries the databases which allow and provide the management information for business intelligence and helps Rolls Royce for operational, managerial and strategic decision making [Yusuf Y, Gunasekaran A and Abthorpe MS (2004)].
Business Process Management
Business Process is the set of activities carried out by a business organisation that is initiated by an event, transforms information, materials, or business commitments, and produces an output [Harmon (2003)]. Business Process Management is the process of managing the activities of business process. One of the major benefits of using ERP is the business process automation. So, ERP can be very useful for the management of business process, in fact, ERP itself defines the business process because the organisation’s business process is integrated in the ERP system. Rolls Royce had also faced difficulties to change their business process in order to fit the SAP. But they need to implement the ERP to automate their business process, to access accurate management information in less time and to add value in their supply chain.
Value Chain
Figure: Value Chain in an Organisation [adapted from: Porter ME (1985); Competitive Advantage: Creating and Sustaining Superior Performance, Free Press]
The value chain model includes the exact activities in business organisation where we can apply the competitive strategies [Porter ME (1985)] and where we can implement the information system effectively to gain competitive advantages. These activities of the organisation defined by value chain model are distinguished in two different categories
Primary activities and
Supportive activities
Primary activities are those activities which are involved in the process of production and distribution of the organisation’s product and the services. Those activities shown by the value chain model are inbound logistics, operations, outbound logistics, sales and marketing and services. Inbound logistics define the receiving and storing of the materials for the production of the goods. Operations define the process to convert the inputs to the end products. Outbound logistics define the storing and distribution of end product. Sales and marketing describes the promotion and selling of the outbound logistics and last but not the least is the services which includes after sale repair and maintenance of the end products. Supportive activities support for the successful outcome of the primary activities which includes; infrastructure of organisation (administration and management), human resources (recruitment, hiring and training of employees), technology (technology used for the improvement of product and production process) and procurement (gathering inputs for the organisation) [Laudon (2006)].
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ERP system connects every department of the organisation with each other so every activity can be monitored at any time. The information about those activities provided by ERP system is used to find the point in the value chain where the cost can be lowered and value can be added. Moreover, it can be used to tie up the organisation’s supporting bodies such as suppliers, customers, partner organisations and distributers and the value chain of the organisation will be linked with the value chain of its supporting bodies. The use of the information system for the linkage between value chains will enable the organisation to reduce the cost for inventory and to response the customer’s demand promptly.
Competitive Forces
Figure: Competitive Forces [adapted from: Porter ME, Harvard Business review, January 2008]
According to Porter’s competitive force model there are five major forces that are acting upon any business organisation which tries to diminish the organisation’s performance and these forces must be made ineffective by the organisation in order to survive in the market. These five forces are:
Possibility of new entrance of competitor
Bargaining power of customer
Bargaining power of supplier
Substitute products or services
Position of the existing competitors
Different strategies can be applied to reduce these forces. And use of information system can make ease for the organisation to determine the strategy that should be applied in order to gain the competitive advantage.
Rolls Royce has very low risk of new entrants. Because of their brand name and their well establishment make hard for the possible competitor to compete with Rolls Royce. The high initial investment cost will also discourage the threat of new entrants into this market. Rolls-Royce collects real-time data of their engines which are operating all around the world. By analysing, sharing and acting upon this information, they can optimise the performance of their engines in service [Rolls-Royce Group plc, Annual report 2009]. They have such a good information system to take care of the services needed by their customers, which reduces the bargaining power of customers and threat of substitute product and services. Information system in Rolls Royce and their direct communication with the suppliers are also helping them to maintain good relationship with their suppliers minimising their bargaining power. Rolls Royce is operating its business in a very competitive market in response to its competitors such as Pratt and Whitney, General Electric, CFM International. That is why they invest large amount of money for research and technology to differentiate themselves from their competitors.
Rolls Royce has developed a balanced business portfolio and continues to maintain a steady focus on improvement in operational performance by modernisation of its facilities and focusing on managing the costs of operations and products. Continual investment in technology and strong protection of intellectual property, together with the establishment of long-term customer relationships, allow the Rolls Royce to make its products and services different from its competitors [Rolls-Royce Group plc, Annual Report 2009]. One of the examples for their investment in technology is the implementation of ERP removing their old systems investing huge amount of money in it.
Competitive Advantage
In a simple sentence, we can define competitive advantage in the business term as the advantage gained by a company in the market competition with their competitors. Any organisation can gain competitive advantage over their competitor by the following means:
Reducing their production cost and then the cost of their product,
Improving the quality of their product,
Providing good after sale services,
By differentiating their products from the product of their competitors,
Growth of the company
“Companies that successfully alter their business around IT can achieve a significant window of competitive advantage” [Tapscott D (2004)]. This doesn’t mean that all those companies who use IT and IS in their business processes can gain competitive advantage but, the organisation who smartly and strategically use IT and IS will certainly gain the competitive advantage.
Rolls Royce is operating in the market which wants them to deliver increased value in terms of cost, quality and delivery performance. So they always try to minimize the cost, increase the quality of their product and promptness in services. Management information system like ERP implemented in Rolls Royce provides the relevant information which directly or indirectly helping them to achieve those advantages. ERP benefits Rolls Royce to control the business operations and helps costs reductions. It is used for real time data management which also helps them to provide good and on time service to their customers. For instance, real time data management enables them to be more predictive they can know when engines are going to come along and they can provide the exact down time for the aircraft and the maintenance. According to the article by Ashford W (2007), the CIO of Rolls Royce, Mr Jonathan Mitchell states that “We have traditionally operated factories independently, but the standardisation of systems and processes means we can now operate more effectively at the global scale”. ERP is the integrated system for business processes so, moving of the factories, expanding the business and production throughout the globe is not so difficult. They have got a different department for the research purpose only, which always works on how to add value to the products? They are trying to make their product different from other competitors by inventing the engines that produce less pollution and without the processed information provided to them it won’t be possible for them to carry out these tasks.
Conclusion:
The niche behind the success of Rolls Royce in its market place is the implementation of the latest technologies and the information system in its business processes, which provide a message to those who think that, investment in the IT and the IS is nothing but just waste of the organisation’s capital. Rolls Royce were using many systems since long however, looking at the feasibility and importance of ERP in strategic decision making, business process and connecting their departments as well as business functions, they invested large amount of money for developing and implementing ERP system replacing the old systems.
The smart integration and implementation of Information System and Information Technology in a business organisation and its processes will lead it to the competitive advantage in its industry. It’s very difficult to find any organisation which has faced up to the failure in spite of strategic implementation of IS in its business processes.
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