Enterprise Resource Planning

An Enterprise Resource Planning (ERP) system is an advanced modern complex technology that integrates and co-ordinates almost all functional areas in the modern organisations. ERP implementation and its impact on organisations differ from the implementation and impact of custom software systems. This book investigates the processes of management accounting change triggered by the implementation and use of these two types of information technology (IT) in four Egyptian organisations, two government agencies and two state-owned enterprises. In particular, the study compares ERP with customised software in relation to change in management accounting systems and practices and change in management accountants’ role and relationships with other organisational members in highly regularised Egyptian organisations that have been influenced by recent institutional transformations. On the one hand customised software, which is designed to satisfy the organisation’s specific needs, tends to reinforce existing management accounting practices. On the other hand ERP systems are a special type of packaged software. Their implementation is characterised by complexity and cross-functional nature. ERP systems, with their built-in ‘best’ management accounting practices, promise radical change in the way of doing things, especially in developing countries.

The revolution in computing and information technology has facilitated the design and implementation of effective management accounting systems. ERP systems, as one of today’s popular information technologies in the changing business environment, support ‘modern’ management accounting techniques such as activity-based costing (ABC), activity-based budgeting (ABB), product lifecycle costing and balanced scorecard (BSC). In addition, the promise of integrated, flexible, real-time financial and operating information offered by these systems addresses many of the traditional criticisms of management accounting systems raised by Kaplan (1984; 1986) and his colleagues (Johnson and Kaplan, 1987; Cooper and Kaplan, 1992). For instance, Johnson (1994: 261) argues that traditional management accounting information became ‘too distorted, too aggregated and too late to help managers control operations’. Accordingly, implementation of ERP system can be described as ‘a change agent’ (Granlund and Malmi, 2002).

In the previous chapter we reviewed prior studies on ERP and management accounting change to evaluate various research approaches and to identify research issues. Our review revealed that there is a recent and increasing interest in studying management accounting change, including ERP-driven change. Different research perspectives, including positivistic, interpretive and critical approaches, have informed research on management accounting change. However, each approach on its own gives only part of the picture and needs to be complemented by other approaches to get a better understanding of management accounting change as a complex phenomenon. This study draws upon Giddens’ structuration theory, as a critical meta-theory, and institutional theories, as interpretive theories, for the theoretical framework informing the current study.

The previous chapter discussed the theoretical framework that this study uses to analyse the empirical results. This chapter describes the design and implementation of the empirical phase of the study. It explores the research methodology and techniques used to collect empirical data. The remainder of this chapter is divided into seven sections. Section 4.2 presents different research methodologies and their relation to theory and research method selection. Section 4.3 discusses the interpretive case study as the preferred method for collecting empirical data. Section 4.4 describes the pilot case study that clarified the research issues and research design. Section 4.5 describes the design of the case study and the organisations and individuals chosen for the empirical study. Section 4.6 discusses data collection methods particularly the use of semi-structured interviews which was selected as the main method. Section 4.7 discusses the weaknesses and problems of the case study method. The last section provides a summary and conclusion.

Scott (2001: 182 & 184) refers to deinstitutionalisation as ‘processes by which institutions weaken and disappear … the weakening and disappearance of one set of beliefs and practices is likely to be associated with the arrival of new beliefs and practices’. Egypt is in economic transition from an inefficient command economy to an efficient and liberalised free market economy. It has adopted a number of reform programmes that transform the circumstances in which Egyptian organisations operate. These programmes create new extra-organisational institutions¹ that shape and constrain, among other things, management accounting change processes in Egyptian organisations.

The previous chapter described the extra-organisational institutions of management accounting practices in Egypt. Drawing on the theoretical framework developed in Chapter 3, this chapter aims at making sense of change and stability in management accounting rules (systems) and routines (practices) associated with IT (ERP vs. custom software) implementation and use in the four Egyptian organisations under study. The analysis in this chapter addresses the first group of research questions. It is based on the use of different theoretical concepts such as path-dependent change processes and interpretive flexibility of technology in interpreting the empirical evidence. It is also conducted at different levels, including action, routines, intra-institutionalisation and extra-institutionalisation.

Giddens (1984) argues that there is misdistribution of resources that is the basis for domination structure. He develops the concept of the dialectic of control that implies that, despite this asymmetrical distribution of resources, all power relations involve reproduced relations of autonomy and dependence in interaction in both directions. Drawing on this concept and its application in Burns and Scapens’ (2000) framework, this chapter analyses extra-institutional pressures and change in management accountants’ roles and relationships due to the introduction of IT in the four cases under study. The analysis is conducted at two levels. The first level examines the changing power relations between extra-organisational institutions and organisational members due to the implementation of IT projects and associated management accounting change, if any. The second level examines the changing power relations among organisational members due to the implementation of IT projects and associated management accounting change and stability. We analyse the roles of management accountants, IT specialists and line managers and their relationships within each organisation.

This chapter summarises the main findings of the study, provides some recommendations, sets out research contributions, shows research limitations, and identifies future research opportunities. The first section summarises the main findings from this study and draws relevant conclusions. The following section presents the main implications and recommendations for companies that initiate IT projects and accounting educators. The next section sets out the contributions this study makes to our understanding of the interaction of new technology and management accounting. Specifically, it compares the experiences of ERP implementations in Egypt and developed countries to shed light on the additional challenges facing ERP projects in Egypt. The final two sections in the chapter discuss respectively the limitations of the study and possible areas for future research.