29 Case Geneva Steel

Enterprise Resource Planning Systems and Communicative Action

Jesse F. Dillard School of Business Administration Portland State University Portland, OR 97207

and

Kristi Yuthas School of Business Administration Portland State University Portland, OR 97207

Submitted for presentation ECAIS 2005

Enterprise Resource Planning Systems and Communicative Action

Abstract

Enterprise Resource Planning (ERP) systems represent a quantum leap in integrated, entity wide information systems. Managers are implementing these enterprise-wide systems in organizations of all sizes and types. Ironically, by implementing such all encompassing and prespecified systems, organizational managers in effect lose control of the strategic and operational processes and models that frame and instantiate the enterprise’s management information system and ultimately their actions. These systems are designed and developed by the software vendor, and the “best practices” embedded in the standardized software by the vendor’s systems developers. We develop a framework grounded in Habermas’ theory of communicative action that provides a description of the context within which such systems are developed and implemented. The framework also facilitates a critique of the underlying ideologies and assumptions associated with, and incorporated into, the ERP system design. The presentation opens with a discussion of ERP systems and the extent of their proliferation over the organizational landscape. The implications for the management and control of work organizations are also considered. Next, a Habermasian framework is developed and used in analyzing the cultural and social context within which ERP systems are developed and implemented. The efficacy of the system is illustrated using a reported system implementation

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Enterprise Resource Planning Systems and Communicative Action

Technology, as a mode of production, as the totality of instruments, devices and contrivances which characterize the machine age is thus at the same time a mode of organizing and perpetuating (or changing) social relationships, a manifestation of prevalent thought and behavior patterns, an instrument for control and domination. Herbert Marcuse

INTRODUCTION

The application of computer-based information systems has steadily developed over the past several decades following, and motivating, advances in scientific and administrative technology. The first wave of computer based management information systems were designed to facilitate formal financial accounting functions. Next, other stand-alone systems were developed to carry out both accounting and nonaccounting functions such as production scheduling, product design, inventory management, and human resources. Enterprise resource planning (ERP) systems represent the latest and most ambitious application of administrative and computer based technologies in developing management information systems. This inclusive software integrates each of the separately focused information systems into one core software system designed to be the complete database and information system for an organization at the local, regional, national, and/or international level. An integrative architecture and relational

database provide organization-wide access and analysis capabilities by standardizing data capture and providing seamless interfaces across functions, responsibility centers, and locations. As ERP systems become more widely implemented in organizations of all types and sizes, our inquires and understanding must extend beyond the technical aspects of development and implementation. Following a developing body of accounting research,1 frameworks grounded in Habermas’ ideas have been applied in the accounting literature in a variety of domains with a good deal of the work addressing issues faced in the public and/or not for profit section.2 Several studies use Habermas’ ideas in addressing accounting information systems issues.3 Recently, ERP systems are getting some attention in the accounting literature,4 but to date none have considered ERP systems in light of Habermas’ social theory. Our proposed framework moves beyond conventional noninclusive and instrumental perspectives. We use the theory of communicative action to formulate alternative perspectives and to recognize and critically evaluate the underlying assumptions and ideologies associated with ERP systems applications. Employing the theory of communicative action facilitates the formulation of a more complete and balanced understanding of these enterprisewide systems and their effect within work organizations. The proposed framework addresses issues regarding the scope, participation, and procedures necessary for effective governance of ERP systems. A critical analysis of ERP systems aids in recognizing the context within which the enterprise system is implemented. A clearer understanding of the context increases the 1

See Arrington and Puxty (1991), Broadbent, et al. (1991), Laughlin (1987, 1995), and Power and Laughlin (1992, 1996) for a discussion of Habermas’ social theory within an accounting context. 2 Broadbent, et al. (1991), Broadbent, et al. (1994), Broadbent, et al. (1996), Broadbent and Laughlin (2003), Chua and Degeling (1993), Dillard (2002), Dillard and Smith (1996), Dillard and Tinker (1996), Laughlin (1988), Laughlin and Broadbent (1993). 3 Dillard and Bricker (1992), Dillard and Yuthas (1997), Drake, et al. (2000), Yuthas and Dillard (forthcoming). 4 Hayes, et al. (2002); Hunton, et al. (2002), Quattrone and Hooper (forthcoming, 00a, 00b), Yuthas, et al. (forthcoming).

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possibility for overcoming the technocentric, managerialist mentality that ignores the social and political implications. Current perceptions of ERP systems, as evidenced in trade publications and the academic literature, emphasize their roll in enhancing economic efficiency and improving financial performance. Within such a technically rationalized and managerially dominated context, those responsible or designing, implementing, and acquiring the enterprise wide systems give little attention to social considerations. As a result, implementation and integration problems are likely to be overlooked or oversimplified, important alternatives not recognized, and instrumental solutions viewed as superior. Such a perspective not only obscures the organizational structures that embody the values, history, and background within which the systems are implemented and used but also obscures the structural and ideological premises underlying their design. ERP systems represent an extreme application of a techno-rational perspective that dominates the managerialist mentality. According to Habermas (see particularly Habermas, 1984, 1987), a set of social organizing principles determines the available learning mechanisms, the interpretative scope, and the institutional control boundaries (i.e., the context). This context circumscribes the intersection of the technical and the social domain. Discursive practices bring about social integration. As such the discursive practices enable and constrain capabilities for resolution. A balanced perspective can be achieved only through legitimate discursive practices (communicative action). For legitimate discourse to be possible, communicative action requires that three validity claims be satisfied: truth, rightness, and truthfulness. Speakers must be truthful, they must comply with intersubjective norms of discourse, and they must be sincere or authentic about their interests. The communication must take place in a setting that is fair and

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open to interested participants and in which mutual understanding is the goal. If these restrictions are violated, legitimate, trustworthy dialogue breaks down, rendering communicative action impossible, significantly reducing the possible action set.

Limitations imposed on these

discursive practices restrict the system’s integration and resolution capabilities. ERP systems represent powerful mechanisms for structuring organizational context and practices that do not incorporate considerations beyond economic efficiency and effectiveness. As instrumental practices instigated by, and embedded in, ERP systems come to dominate, intersubjective understanding becomes progressively more difficult. Technological consciousness becomes more pervasive, leading to the unquestioned acceptance of the imposed structures. User-friendly interfaces mask relationships and ideologies embodied and institutionalized in the management information system. Within such a context, technical logic marginalizes and subordinates the ethical, political, and social considerations. Ultimately, ERP systems make validity claims that cannot be discursively evaluated by their users, and in many cases by the managers who are responsible of their procurement. We translate Habermas’ ideas into a framework for evaluating enterprise system applications in work organizations. Use of such a framework could increase the likelihood that affected parties will engage in legitimate discourse, enhancing the possibility for more fully anticipating the implications of ERP adoption. For example, if an ERP system installation is being considered, a traditional approach includes evaluating the system’s impact on the decisionmaking capabilities of managers and users and on the organization’s economic standing. A more pluralistic approach includes nonuser employees and potential employees, customers, suppliers, investors, and the community. Input from constituents with alternative perspectives provides a

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richer context for making the system implementation decision and provides greater legitimacy to the choices made. The remainder of the paper is organized as follows. The first section describes ERP systems, reviews their origins, and discusses the current and anticipated extent of their application within work organizations. Next, Habermas’ theory of communicative action is outlined, and its relevance to ERP system applications is developed. The third section uses a case to illustrate how Habermas’ ideas relating to communicative action can be applied to an ERP implementation. Closing remarks discuss the limitations of the proposals developed and provide suggestions for further research.

ENTERPRISE RESOURCE PLANNING SYSTEMS Enterprise resource planning systems are commercial software packages designed to integrate an organization’s business information systems.5 Ideally, a seamless flow of information occurs from and to all parts of an organization, crossing geographic as well as functional and organizational boundaries. The enterprise system effectively overcomes time and space constraints through real-time access to a centralized database. The systems support multiple currencies and languages. Industry-specific versions of large ERP systems are available for many industries. The ERP system integrates traditional accounting activities concerning transaction capture and processing with the other primary functions of the organization such as production, human resources management, and sales. Integrated processing supports and assimilates planning and control activities in additional to operations.

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This section draws heavily from Davenport (1998), Gelinas, et al. (1999), O’Leary (2000), and Yuthas, et al (2002). These authors provide many examples of ERP systems applications in specific companies that are supportive and informative. The interested reader is referred to these publications.

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Systems, Applications and Product (SAP), Oracle, PeopleSoft, J. D. Edwards, and BAAN represent the major ERP products. SAP, a German company, is the market leader, having gained around 30% to 40% of the international market and reported revenue growth from $500 million in 1997 to $7.3 billion in 2001. O’Leary (2000) states that over 60% of multinational firms have implemented ERP systems to some degree (Bowley, 1998) and that the number of small and medium enterprises (SME) implementing these systems is increasing rapidly (Foley and Stein, 1997). O’Leary (2000) reports that an average cost of ownership has been estimated to be $15 million, with a $53,320 cost per user. ERP systems have fundamentally changed the way business is done in many industries. When an industry leader implements an ERP system, competitors tend to follow along, often implementing the same vendor’s ERP6. The implementation of an ERP system by one or more strong firms within a supply chain alters the nature of business partnering and provides a strong incentive for upstream and downstream firms in the chain to follow suit. Companies also receive pressure to implement ERPs from professional service firms that provide ERP consulting services, including all of the major accounting firms. Davenport (1998) estimates that consulting fees roughly equal the amount spent on purchasing the software. Abrahamson and colleagues (e.g. Abrahamson, 1996; Abrahamson and Fairchild, 1999) have described and documented the processes through which these consultants sense the desire for new managerial techniques and use rhetoric that appeals to the desires of managers and other stakeholders to adopt rational and progressive techniques. In this manner, psycho-social forces combine with institutional pressures and the desired technical and economic solutions to motivate mangers to adopt ERPs.

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For example, Davenport (1998) reports that SAP R/3 has been implemented by almost every company in the personal computer, semiconductor, and petrochemical industries.

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Davenport (1997) describes the primary components of ERP systems. The backbone of the system is a central database that stores, and makes readily available, data retrieved by the various application modules. Application modules include: financial functions; manufacturing/ service processes; quality and plant management; inventory and supply processes; human resources management; sales and delivery; customer service; and reporting capabilities. Other applications involve production planning, including sales and operations planning, materials requirements, and capacity requirements. Project tracking, budgeting, and even strategic management applications are available. The central database standardizes and streamlines the collection, analysis, and dissemination of data throughout the organization. The modules, or applications, carryout the activities associated with the function. Reengineering business processes goes hand in hand with the implementation of an ERP. Processes represent “the activity and information flows necessary to accomplish a particular task or set of tasks” (O’Leary, 2000:35). Processes can differ across organizations as well as within organizations. One of the purported primary benefits of ERP systems is the standardization of these processes across the organization providing centralization of such processes. To accommodate coordination, ERP companies generally standardize their chart of accounts and other categorization schemes along with reports and reporting procedures at the same time they standardize their operational procedures. Common practices provide the capability of integrating across various system applications thus facilitating the integration of corporate information systems. The choice of process is critical and can have significant impact on the company (Glass, 1998; Sadagopan, 2001; Smyth, 2001; Stedman, 2000). In general, when companies implement ERPs, current practices must give way to those designed into the system (Gendron, 1996). The implementing firm replaces existing processes

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with “best practice” processes that are embedded in the system software. These “best-practices” are purported to represent the industry standard for the most rational and progressive business processes available. The software vendors and sometimes a handful of large companies upon which these “best-practices” are modeled design the processes.7 The entity gains economic benefits through the ERP’s highly structured, tightly integrated components and standardized processes. However, organizations must conform to the “best-practice” processes in order to realize the benefits of enterprise systems (Bingi, et al., 1999; Osterland, 2000). In addition, implementation of these far-reaching systems tends to formalize existing organizational practices, making them much more difficult to change. Thus, most companies work through an extensive process of reengineering to optimize processes prior to implementing in the system. Although early reengineering efforts sought to use a ‘clean slate’ approach in which optimal processes were designed without prejudice to current ones, this approach is untenable in an ERP environment. ERP systems contain an alternative sets of preprogrammed processes from which an organization can choose. When the available processes do not match the organization’s requirements, the system can be customized. This is rarely done, however. These systems have numerous integrated models communicating with one another and sharing an integrated database. A change to one module can necessitate changes throughout many parts of the system, and the cost can be prohibitive. In addition, the changes only remain active until the company upgrades to a new version of the system. For these reasons, rather than designing their own processes, companies implementing ERPs generally reengineer by selecting from among the processes available and then configuring screens and other details to conform as closely as possible to original desires. 7

As argued by Yuthas, et al. (2002), these practices may not in fact be best for a given firm depending on how well that organization’s culture and context coincide with those of the “industrial leaders” or the assumptions of the software developers.

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When existing processes and structures are similar to those available in the system, few major changes to processes are necessary.

When existing processes and structures are very

dissimilar to those in ERP, the organization must make dramatic changes in order to accommodate the system. When Microsoft implemented SAP’s financial modules, the company switched from a departmental organization, which was not supported, to a set of profit and cost centers (O’Leary, 2000). While most companies make the necessary changes, others opt away from ERP solutions. Allied Waste, Waste Management, and other members of the industry aborted their SAP projects when they realized that adoption meant standardization and centralization of many processes that were currently under the control of numerous decentralized business units. Improved decision making capabilities manifested in such activities as inventory reductions, personnel reductions, and more efficient reporting capabilities produce the legitimating “economic value added” by the system. O’Leary (2000) identifies seven interrelated and intermediate outcomes that contribute to the enhanced economic value added. First, there is integration of information and information flows across functional areas facilitating the integration of activities. Second, the choice to implement an ERP system results in the acceptance of the best practices that have been programmed into the system software. Third, organizational standardization occurs in both internal processes and external interfaces. Fourth, control is enhanced because standardized, accessible information makes visible any deviation from the norm. Fifth, access to information is enhanced from both a content perspective as well as a timeliness one. As a result, acquisition of information recedes as a means for exercising power. Sixth, the organization can be flattened eliminating middle level personnel. Seventh, collaboration and communication are facilitated both inside and outside the organization.

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To gain these benefits, organizations must redesign their internal processes as well as their inter-company interfaces so that they conform to the models and processes provided within the system (O’Leary, 2000; Poston and Grabski, 2001, Gendron, 1996; Davenport, 1998). As described above, this ultimately results in systemic process reengineering. According to Davenport (1998), this emphasis of system over enterprise is one of the major problems related to ERP systems. Prior to the introduction of ERPs, information technology was viewed, and designed, as a tool for supporting business practices. With the implementation of ERP systems, the sequence is reversed. Organization management must consider the possible tradeoffs required between modifying the system to accommodate the organization’s processes or changing the organization’s processes to conform to those incorporated into the system. And this should be done early, because after an ERP system has been installed, major costs associated with changing the business processes may be incurred (Glass, 1998; Williamson, 1997, Davenport, 1998). In addition to process changes, changes in organizational structure and human capital investments are necessary to facilitate productivity gains in conjunction with information technology investments (Hitt and Brynjolfsson, 1996, 1997; Brynjolfsson and Hitt, 1998). Highlevel corporate strategy is also interlinked with system implementation choices (Nolan, 1995; Davenport, 1997; Venkatraman, 1994; Keen, 1997). Thus, organizational capabilities and competitive position can suffer when core processes are reengineered (Schragenheim, 2000; Yuthas, et al. 2002). A HABERMASIAN INTERPRETATION The work of Habermas (1975, 1985, 1987) provides a general theoretical framework useful in understanding the social context motivating the implementation of ERP systems as well

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as the effects of their use.8 The specific theoretical grounding providing the framework for the following discussion is an extension of the interpretations and applications provided in the accounting literature by Broadbent, et al. (1991), Laughlin (1987), and Dillard (2002). The articulation and refinements developed in Broadbent, et al. (1991) and applied in Dillard (2002) are used in specifying our framework for understanding the social context motivating the implementation of ERP systems as well as the effects of ERP systems applications within organizations. Further, following from Laughlin (1987), we see the application of these ideas as research undertaken within the “middle range.” That is, we propose a general articulation that provides a skeletal framework for organizing and making sense of observed activities. The objective is not to construct grand theory, but to aid in understanding on the part of both the researcher and the researched facilitating the possibility for emancipatory change. The following discussion views ERP systems and their application through this Habermasian framework, providing a more in-depth perspective than the traditional technical one affords. First we consider the general make up of social systems and the inherent crisis tendencies that motivate change within market capitalism. Second, we consider the mechanisms that control the make up of dynamic social systems, in this case, work organizations. Social Systems and Inherent Crisis Tendencies Habermas9 postulates three societal systems or components: the economic system, the administrative system, and the lifeworld. The economic system refers to the value (goods and services) created by the society’s modes of production. The administrative system brings

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As one of the leading living social theorists, Habermas’ ideas have been extensively discussed. See for example Dodd (1994), Held (1980), Pusey (1987), and White (1988). 9 Habermas’ ideas more fully presented in Broadbent, et al. (1991) and Dillard (2002); therefore, only a brief discussion is presented here.

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technology, both administrative and scientific, to bear on the economic system as part of the resource, both human and material, transformation process. The lifeworld represents the social system dimension within which cultural norms and values are discursively formulated by the participants and, ideally, provide the legitimating grounds for the actions taken by the administrators of the modes of production as well as the distribution of the wealth generated by the economic system. Change, or pressure for change, emanates from frictions, or crises, within the social systems of market capitalism as attempts are made to direct the activities of the material and human resources. Within a capitalist social system, Habermas identifies four interrelated crisis possibilities: economic, legitimation, rationality, and motivation. Following, at least generally, from a Marxist critique of capitalist social relationships, economic crises arise because of inherent contradictions such as the socialized production of goods and services and the privatization of surplus (profits). The administering group, management, 10 comes under increasing pressures to satisfy the requisite resource accumulation in the face of market fluctuations. The rationalizing response is to apply technology, either scientific, administrative, or both. A rationality crisis occurs as the administrative system attempts to respond to an increasingly complex set of economic failures. In order for management to maintain its privileged position and thereby exercise influence over both material and human resources, its actions must be perceived as legitimate by the members of the affected society. However, there are two potentially opposing constituencies the administrators are attempting to satisfy – owners/capitalists and other organizational stakeholders. Given the

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While Habermas addresses his theoretical framework primarily at the societal level, we apply them specifically to the context and processes surrounding and associated with work organizations within a market capitalist economy. This interpretation is consistent with much of the previous accounting work cited, especially see the body of work by Broadbent and Laughlin.

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privileged position of the owners/capitalists, management must respond to the best interest of the privileged group. A legitimation crisis arises as the actions of the administrative system are no longer seen by the members of the society as apolitical and unbiased, which occurs as the distribution of wealth, life opportunities, etc., are increasingly recognized as favoring certain groups. The rationalizations for the inequitable distributions of wealth can no longer be legitimized by claims of natural selection by unbiased market mechanisms and technological determinism. As the administrative system loses legitimacy, members of the society are no longer motivated to support the prevailing social arrangements. At this point, coercion, overt and/or covert, is required in order to maintain the prevailing social order. Coercion results in the subordination of the rights of the oppressed group(s). ERP systems represent a technology that is implemented under the guise of increased economic efficiency and cloaked in claims of technological determinism. Ideally, according to Habermas, lifeworld-inspired social and cultural norms and values guide the application of technology. These norms and values are not imposed from above but arise through the discursive interactions of members of the ongoing community. However, as described in the previous section, the primary justification for implementing ERP systems reduces to market pressures to attain or maintain adequate returns to capital, with little regard for other constituencies or stakeholders. Restated in terms of the Habermasian framework, the administrative system rationalizes the imposition of the ERP system as the necessary, i.e., market driven, application of administrative and information technology. In appealing to this type of technological determinism, the administrative system maintains control of resources and the distribution of the returns thereto.

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Looking at ERP phenomena from a crisis perspective provides a dire image of their consequences. As information technology, such as ERP systems, becomes more heavily relied upon to reduce costs and enhance profits, with few of the benefits being shared with those displaced, deskilled, or reengineered, the administrative system’s ability to provide apolitical, scientifically rational justifications for such decisions begins to break down. Participants must perceive the actions as legitimate, grounded in, and consistent with, the prevailing cultural norms and values, or the administrative apparatus’ legitimacy to maintain control over resources is increasingly questioned. Contradictions in the justifications for ERP systems become more obvious as the ability to rationalize them as evolutionary and requisite market solutions erodes. Appeals to market forces by the administrative system do not provide adequate rationalization for exploitation and elimination. Privileged positions become increasingly challenged. As technical rationality and instrumental objectives come to dominate, participants are no longer motivated to give their allegiance to the administrative system. As a result, some form of coercion is required. In this scenario, ERP systems can be used as a tool for imposing management’s will. An ERP system reflects the dominance of formal rationality and the exclusion of more comprehensive, social oriented, logical structures such as normatively regulated communicative action.11 Habermas (1984, 1987) argues that formal rational action is not in itself undesirable but that problems arise when this logic becomes totalizing. The ability to develop and engage lifeworld-based social norms and values in evaluating the desirability and legitimacy of technology is superceded by those based on the purposive rationality of the administrative

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Habermas (1996) considers the implications of communicative action within the context of constitutional law. As Power and Laughlin (1996) point out, communicative action is recognized as being idealistic and ultimately unattainable especially within work organizations, but this does not reduce its relevance as a basis for a critique of extant social situations.

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system. Information system implementation under such circumstances gives little regard to implications beyond the instrumental perspective of enhancing the entity’s competitive position, generating adequate profits, and, thus, maintaining management's preeminent position (Smith, 2000; Burris, 1994; Scott and Hart, 1989; Zuboff, 1988). Administrators implement rationalizing devices such as ERP systems in an attempt to control the factors of production, markets, and the socio-political context. As a result management pursues strategies directed toward rationalizing their operating context in terms of control predicated on the necessity of economic efficiency. ERP systems represent the technological manifestation of purposeful rationality and are justified by resorting to arguments of technological determinism.12 With Habermas, ERP systems as manifestations of purposeful rationality are not within themselves undesirable. However, as they have been developed, these global systems are outgrowths of managerialist inclinations exclusively embodying the methods and models of purposeful rationality. ERP systems embed these methods and models within organizational structures and processes to the exclusion of all other considerations. ERP systems represent totalizing technological applications that attempt to rationalize the production process and to legitimate existing social relations within an organization through management actions. The central motivation behind enterprise systems is the same as such “innovations” as scientific management. The objective is to monitor and control in order to seek

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Technological determinism is an argument that has been used over the centuries as justification for the implementation of rationalizing technology such as the cotton gin, mechanized looms, Fordist production processes, and robotics. For a more complete and varied treatment of the historical context of business organizations, and the related accounting systems, see Hopper and Armstrong, 1991; Johnson and Kaplan, 1987; Gordon, et al., 1982; Clawson, 1980; Chandler, 1977.

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economic gains, perpetuating the underlying, often unrecognized, ideology of capitalist exploitation.13 Mechanisms that Control the Makeup of Dynamic Social Systems Social systems, be they entire societies or work organizations, are concrete representations manifested as functionally definable, tangible networks held together by steering media and, ideally grounded in the prevailing norms and values of the participants. Steering media are the basis of influence and control exercised within a social organization. Steering mechanisms are motivated by the steering media and provide the means whereby social organizations are influenced and controlled and include policies, procedures, and processes. Steering mechanisms, which are developed by the administrative system, guide the economic systems and are ideally grounded in the social norms and values of the participants. If, as we argue below, purposeful rationality, as represented by advance information technology such as ERP systems, replaces the societal norms and values as the basis for social organization and behavior, then the social systems and their accompanying organizing principles can become oppressive and exploitative. Habermas refers to these steering mechanisms as constitutive. On the other hand, if the steering mechanisms are grounded in the norms and values of the community, then social systems may be facilitating and supportive. Habermas refers to these steering mechanisms as regulative. The primary difference between constitutive and regulative steering mechanisms is the degree to which they are formulated and legitimized through the process of communicative action. Constitutive steering mechanisms may be required as the administrative system, in this case management, reacts to the crisis cycle described above. The policies, processes, and 13

See Smith (2000) for a discussion of the relevance of these traditional ideas within the current economic and political context.

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procedures are not the result of the discursive interaction among the constituents but the coercive measures required to maintain the exploitative relationship with other social constituents. Here, the formal rationality of the economic and administrative systems overwhelms the discursively developed norms and values of the community, imposing an alternative set of norms and values. Habermas refers to this as the colonization of the lifeworld by an administrative system imposing purposeful rationality without regard to alternative perspectives. The steering mechanisms reflect the logic and demands of the economic system, not the discursively formulated norms and values of the lifeworld, and the participants lose the capacity to question and criticize because they lack the ability to formulate alternatives. The imposed position is reified and perceived to be the unalterable context within which one must function. Steering mechanisms can be classified as constitutive, regulative, or both depending on the level of evaluation, the time frame, and the outcome. For example, an ERP system can facilitate a work environment where the well being of those involved is paramount. The development and implementation of the information system could be the result of the involved participation by all affected parties. The software could include processes that would reduce the tedium and enhance self-development and communication among the participants. Unfortunately, ERP system design does not generally incorporate these capabilities. Alternatively, the information system could be imposed on the organization with the purpose of eliminating personnel, reducing costs, deskilling tasks, and channeling communication toward exploitive ends with no concern for the implications beyond market valuations. Again, these characteristics represent the dominant ones for design as well as the justification for acquisition and implementation.

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To summarize, enterprise resource planning systems are a powerful means for imposing business processes within a work organization. Their application appears to be justified on a narrowly defined, economically focused perspective articulated in terms of competitive market pressures and technological determinism. In general, these systems represent constitutive steering mechanisms that are motivated and controlled by top management. In the next section, we interpret an actual case situation using the framework discussed in this section. The analysis illustrates how Habermas’ ideas are useful in understanding how and why ERP system implementations evolve and their lifeworld implications for organizational constituents. The example used is developed from a case presented by O’Leary (2000) as illustrative of a small/medium size entity’s (SME) activities as the company selects, implements, and applies an ERP system. GENEVA STEEL

Geneva Steel, a medium sized steel company operating in Vineyard, Utah, produces sheet and plate steel, pipe, and coil for use in the manufacture of industrial equipment and for construction projects. The company was formed and its plant constructed during World War II in response to the demand for steel in the construction of seagoing vessels. After the war, U.S. Steel continued to operate the plant until the late 1980s. At that time, the plant was closed temporarily in the face of economic difficulties. It changed ownership and reopened under new ownership. The facts used in this case analysis are drawn from O’Leary (2000) where the case was used to introduce and illustrate elementary ERP concepts. Economic Crisis In the mid 1980s the company faced continuing economic pressure resulting from increasing foreign competition and increasing labor costs. The steel companies operating with

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traditional technologies also faced increasing competition from small steel companies that were using electric arc furnaces or “mini-mill” technology. The mini-mills had lower operating costs and flexible organizational practices. In the face of continuing operating losses, Geneva began a major reengineering effort, seeking to become a flat, streamlined organization and to improve production efficiency. Geneva made the decision to implement SAP to facilitate this change. When commenting on the reengineering initiative, Chairman Joseph Cannon discussed the problem of how the company would move from a traditional steel culture to a mini-mill culture: “How do you do that? Of course…nothing is a real silver bullet. One of the drivers in any case was that we needed to change our systems… We have a really outdated and primitive accounting system; that needs to be changed.” It was noteworthy that the chairman linked the accounting system directly to the need for change implying the critical linkage between information systems and organizational structures. Administrators at Geneva possessed the power and resources to control the development of the ERP. They used the system as a constitutive steering mechanism to drive changes in the processes, structures, and culture of the organization. The Administrative Response to the Economic Crisis In the mid-1990s, Geneva began to address its growing economic crisis through the “Delta Project.” The project sought to reduce costs by 20% during 1997 through a reengineering effort designed to “effect systemic and pervasive change with respect to corporate systems, process and structures.” A press release in 1997 describing the initiatives justified them with standard economic logic: “These initiatives are necessary to remain competitive in the current steel market place.” In conjunction with this project, Geneva steel began the implementation of SAP’s R/3 ERP software. In a 10-K report in 1998, Geneva stated that “This system [SAP]

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affects nearly every aspect of the Company’s operations.” Within a two-year period, Geneva had reengineered critical business processes in all major functional areas and replaced the systems that had traditionally supported those functions. At the inception of the project, Geneva anticipated dramatic headcount reductions characteristic of ERP implementations. Within information technology and accounting functions that could now be streamlined and automated as a result of the ERP implementation, the company expected staff to be reduced by more than 80%. Through force reductions along with increased efficiency in manufacturing and other functions, Geneva believed that the ERP would be a key force in addressing the economic crisis. Within a Habermasian framework, change of this scope should not be predicated entirely upon economic forces but should be driven by and consistent with lifeworld demands of the organizational community upon whom the changes would be imposed. Although few employees participated in the ERP decision-making process, it is likely that employees had a desire for systematic change at that time. Employees were frustrated by the inability of systems to communicate with each other resulting in the inability to obtain the information they needed to effectively carry out their jobs. In addition during that time employees were concerned with Y2K issues and competitive pressures. The organizational structure was hierarchical and according to Cannon, the organization climate was characterized by “quite a bit of fear. That is, fear of failure, fear of challenging people that were your superiors in the organization.” However, Geneva’s decision to implement an ERP to address these problems was driven by top management and geared toward the achievement of goals relating directly to productivity and economic success. Employees had few opportunities to participate in discussions surrounding the desirability and nature of change, and resistance to the ERP project began to

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emerge. Despite early resistance, top management pursued changes without providing meaningful opportunities for communicative action and without apparent concern for violation of lifeworld norms and values. Cannon recognized and exercised his power in mandating the ERP. Rather than seek underlying causes for resistance to the system, which might have surfaced areas in which the system was perceived to be encroaching on the lifeworld, Cannon dismissed criticism as simplistic and irrational “Oh it costs a lot of money, It’s just a big hassle,” and ultimately became convinced that this resistance was short-lived and that the coercive approach was providing the desired results: “…as a matter of fact, people have now finally figured out that whether you didn’t like or whether they liked it, it is going to happen.” Design of Steering Mechanisms In Habermasian terms, steering mechanisms developed through cooperative discursive processes are regulative if they help regulate activities in a manner consistent with lifeworld values. Steering mechanisms imposed by administrative systems and driven by the economic motives of capitalism are constitutive in that they not only regulate the activities of the regulated, but they play a role in constituting the actor and the values and interests that govern the lifeworld. Communicative action requires that regulative steering mechanisms be developed through discursive processes involving members of the community affected by those mechanisms and grounded in the community values and norms. During the implementation phase of an ERP, there are many opportunities for communicative action. Conventional wisdom about the ERP implementation suggests the following sequence of events. First, the company engages in a preliminary process of reengineering in which it develops an initial sketch of the processes to be reengineered it order to accomplish organizational goals. Then a system is

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selected that best accommodates the organization’s core business processes. Finally, the company reengineers business processes and configures the system to accommodate organizational preferences. New reporting relationships and policies are established in conjunction with these changes. Each of these stages provides numerous opportunities for discursive interaction among the employees and other constituents. The community can collaborate to develop value-driven understandings about the collective goals, the appropriate design of the ERP, and desired organizational changes. The steering mechanisms resulting from ERP implementation could thus theoretically be more consistent with the needs of the lifeworld and, because they were developed through collaborative action, carry more normative force with constituents. A lifeworld-driven process of communicative action, however, is largely inconsistent with the standard ERP implementation. ERPs are very broad in scope and their components are tightly integrated, leading to a lack of flexibility once a system has been selected. Costs associated with customizing an ERP can be prohibitive, and like most organizations, Geneva chose to select from the process options provided by the software rather than relying on concerted action to design their own. In doing so, the organization subordinated its own policies and processes, developed internally through years of employee interaction and experience, to those processes mandated by the ERP. Traditional processes are embedded with the knowledge, interests, and values of those who have participated in developing and maintaining these routines.14 Geneva’s processes were designed to meet the idiosyncratic and diverse needs of many business units and functions. Processes embedded in ERP systems represent generic or industry-wide practices that replace these traditional routines with processes designed to 14

We are presuming the current processes are regulative. If they too are constitutive, then the company is replacing one set of constitutive practices for another.

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optimize economic efficiency across the organization. Choices among the menu of available processes were made with the guidance of professional service firm consultants, to whom managers and information technology personnel often defer in matters requiring ERP expertise. At Geneva, existing processes were put forth by top management as the primary source of the economic crisis. Following from this reasoning, it seemed logical, even necessary to embrace the rationalized processes available in the ERP. Geneva’s operating processes were more representative of traditional large steel companies, but they were able to replace these processes with those used by the more competitive mini-mills. In addition, as the traditional process had evolved over time, so too had the information systems supporting them. Ultimately, the company had a variety of heterogeneous systems that made integration difficult. Cannon noted, “we have ….a mainframe…[and]…a primitive accounting system… [We] have lots and lots of different kinds of computers. They have a hard time talking to each other…Our system is a roadmap from hell.”15 Geneva hoped to solve their problems by replacing between 50% and 90% of existing company-specific software applications with software developed by SAP. Rather than selecting modules providing the greatest fit with the organization, Geneva implemented all of the major SAP modules relating to accounting, production, and sales. In adopting these modules, and the associated business processes, the company pursued a top-down approach, seeking little input from lower level employees who were slated to use these systems. In an ERP implementation such as Geneva’s, the policies and processes that are developed to accommodate the system are driven neither by employee nor managerial interests. 15

It might be noted that such complexity also obscures the ability of top management to know what is taking place within segments of the organization. By opening up the segments to top management’s gaze, possibilities for responding effectively to the encroaching rationalizing processes is diminished.

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These mechanisms are driven by the values embedded into the system by the software developers and the corporations upon which the ‘best practice’ templates were built, along with the professional service firms whose values motivate the selection of process and configuration options. So rather than crafting steering mechanisms to pursue the organization’s unique political and economic interests, Geneva by default adopted steering mechanisms that built upon the broader managerialist values driven by the more general economic forces of market capitalism. Geneva’s management was apparently willing to adopt steering mechanisms representative of the broader steel industry in order to pursue the cost efficiencies and other economic outcomes that had previously been illusive. In doing so, not only do they adopt processes and policies that were constitutive of the actions of the operating level employees, they also adopted steering mechanism that were constitutive of managerial action as well. Prior to ERP adoption, Geneva’s managers had played a primary role in coordinating activities across divisions and in integrating information from various sources. Cannon stated, “Integration is mostly mental. In other words…. managers are the integrators…. on a daily operating basis, the integration is in the mind of the person and hopefully that person is working with other people.” After the implementation, the information system would take on this role and many staff functions were to be carried out by the system. Providing an example relating to cost accounting, Chairman Cannon said that post-ERP “We will know what the cost is…. all of that will be integrated in a system that will be that much more transparent. You won’t need to have a cost accountant for every single department.” The system would similarly be responsible for integrating key data from sales, operations, and finance into a single report that wouldn’t require analytical combination by the mangers.

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The company also adopted structural changes to accommodate the process-orientation of the ERP. Traditional hierarchical relationships with units organized by function were no longer appropriate. ERPs operate by prioritizing process over function, and the new processes adopted with ERP implementations cut across functional boundaries. For each major process, there is a ‘process-owner’ or responsible manager. These processes function horizontally and managing these structures most effectively requires radical changes to the existing ones. At Geneva, these changes were readily adopted, or imposed, and justified through standard economic arguments: “The changes in our management structure are intended to focus our resources on those areas with the potential of yielding the greatest improvements to the company…The changes in reporting relationships are intended to reflect the company’s commitment to a flat streamline organization…” Thus, the traditional lines of authority, responsibilities, and reporting relationships were abandoned in favor of the technical efficiency of the structures prescribed by the SAP software and the consultants installing it. Discursive interaction was replaced by preprogrammed delinguistified interaction. As noted in the previous section, the possibility exists for steering mechanisms such as ERP systems to be regulative, constitutive, or both. In the case of Geneva Steel, the ERP system appears to be, for the most part, constitutive. One group, top management, made the decision to implement change via a technology-driven reengineering program. The project did not facilitate the discursive interaction among the participants. Management was not able to adequately rationalize the need for the system implementation and the related reduction in force, deskilling of tasks, and redistribution of power and resources. As a result, coercion was required to implement the system and the associated reengineering program. Delinguistified, coercive actions imposing the will of one group on another reduce the possibilities for the participants to

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engage in discourse required for enlightened, socially integrative action. Such coercive actions result in the colonization of the life world. At Geneva, the methods and metrics of the reengineering project represent tangible manifestations of the means by which the lifeworld of these participants was colonized. Colonization of the Lifeworld In conjunction with the Delta Project, organizational objectives, work routines, and communication patterns at Geneva were all changed to accommodate the ERP mandate. Individually and collectively, these changes generated important impacts on the norms and values of organizational constituents as well as on the evolutionary path of traditions and beliefs. Geneva developed a set of outcome measures toward which ERP activity would be addressed. The primary metrics were: on-time deliveries, order fulfillment accuracy, manufacturing cost per ton, administrative cost per ton, customer complaints, manufacturing yields by activity, and inventory levels and product. Within the new ERP system and work processes, the primary concern of the organization was to improve these measures. Improving the measures required very tight control over a broad range of activities, and large reductions in the number of operating and administrative staff. Top management monitored the measures regularly. Consistent with the push toward technological or instrumental rationality, Geneva subordinated other interests to the accomplishment of these goals. Both everyday work processes and communication patterns within the organization were directed by the new technology. The ERP-driven reengineering project created dramatic changes in the day-to-day work lives of the employees who survived the workforce reductions. Standard ERP practice reconstructs jobs to be more expansive. To reduce costs and improve productivity and

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throughput, reengineering attempts to reduce hand-offs between employees or units, and tries to centralize tasks so that the fewest possible employees and units perform the task. And the handoffs that remain are regulated and coordinated by the system. This creates an environment where employees have less interaction with one another and spend more time using the information system to guide and coordinate activities. This redefinition of everyday work situations reduces the propensity of employees to engage in cooperative social action. Their prior claims to expertise are diminished by their new roles, and their opportunities for collaborative discourse are reduced. Work in an ERP environment is highly structured and routinized, and employees across divisions and geographic boundaries perform the same work in the same way. Non-standard transactions are generally minimized. Thus, once the new work routines are adopted, the need for interaction to accommodate these routines is reduced. In addition to changing the specific tasks performed by the employees, the ERP changes communication patterns. With less interaction necessary to facilitate work, employees have reduced need for task-related communication. Communication is mediated through the system, taking the form of transactions, and opportunities for collaboration through discursive processes are reduced. This reduction in face-to-face communication is accompanied by an increase in the availability of information from the system. ERPs bring about greater vertical and horizontal dispersal of information, and allow employees to obtain a great deal of information that was previously only available through human interaction. Outward communication from the employee is also mediated by the ERP, which captures and maintains detailed and real-time information about the work being performed. This reduces the need to communicate many activities and issues, because these are already identified and reported by the system. This

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systematic integration of action, over time, begins to undermine functions essential to the reproduction of the lifeworld. The character and depth of social integration and cultural reproduction are transformed as they are integrated by the system rather than through communicative action. With the widespread availability of standardized information accompanied by the standardization of capturing and reporting information, through time employees will come to adopt a shared vision of the organization and their own activities. This vision is mediated by the ERP and framed from the perspective of economic goal accomplishment. System users begin to speak in the language pervasive throughout the ERP and address the objective work world using a common set of reports and procedures. Thus, rather than cooperatively redefining goals and interests through a process of open discourse, employees enact the goals communicated to and imposed upon them by the system. The lifeworld interests and values shared by the social group, normally sustained through ongoing discursive engagement, begin to give way to the corporate vision embedded within the processes and reports of the ERP. Any resistance to this new order is rapidly deflated as the organization begins to achieve its economic goals. To retain their status in the organization, employees must ultimately be capable of adopting a generalized willingness to follow directives imposed by the ERP initiative, even when these initiatives are unrelated to the norms and goals shared by the social group or are inconsistent with their own experiences and goals. Thus, rather than integrating actions through coordination built upon communication, the actions of the employees at Geneva became functionally integrated. The previous functional activities were reorganized to accommodate and promote objectives of centralized control and efficiency institutionalized in the ERP system. The change required the adoption of a set of overriding values consistent with the SAP imposed

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workflows and the information captured by the system. Overriding values embedded by the systems, workflows, reports, and reporting relationships focused on manufacturing yields, cost reduction, and order fulfillment to the exclusion of a broad range of values and interests. The colonization process results in the organizational participants gradually losing opportunities for communicative action and thereby losing the capacity to engage in cooperative social action. Thus, future evolution of the lifeworld is obstructed. The massive downsizing that accompanies most ERP projects creates an environment that places the livelihoods of employees at risk. To survive, they must avoid administrative conflict and embrace the system and its objectives. Even constituents who retain the power to critically evaluate the system find that their efforts are impotent. After the reengineered work processes are formalized through configuration of the ERP, changes are difficult and costly. The totalizing logic and global reach of the ERP creates an environment in which change in one aspect of the system necessitates changes throughout the organization. Thus efforts to critique or resist various elements of the new organization are blocked. Adoption of ERP systems by trading partners further solidifies existing practices because organizational changes may impose costs on these trading partners. For these reasons, ERPs present a systemic threat to the communicative infrastructure through which symbolic reproduction occurs and impairs the ability of agents to reproduce the lifeworld in a conscious and critical way. Postscript Geneva Steel’s efforts toward economic revival were unsuccessful and the company ultimately declared bankruptcy in 1999, however, the ERP system was considered a success. Despite the current economic downturn, companies continue to adopt and expand ERP systems. While the initial wave of ERP software and implementations were directed at very large

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companies, the phenomena has spread downward to medium-sized and smaller enterprises. Microsoft’s Great Plains Dynamics and a host of other middle-market packages are available, and ERP adoptions continue to grow. Application service providers have also entered the ERP market. These companies provide hosting services for organizations lacking the human or technical resources to maintain their own system in-house. These systems are even more generic and standardized than in-house systems, because hosting companies can support only a fraction of the configuration options available. At the same time ERP adoptions are increasing, industry consolidation in the ERP sector is taking place. At the time of this writing, PeopleSoft has just acquired J. D. Edwards and the newly merged company is facing a takeover bid from Oracle. This suggests that while more companies may be using ERPs, the variety of systems is reduced and business processes and practices are subject to increasingly strong pressure toward standardization. At the same time ERP software is becoming increasingly standardized, it is also becoming more pervasive. Vendors have expanded their industry-specific solutions that now accommodate almost every major Western industry. ERP vendors have expanded their module offerings, which originally emphasized transacting processing within an organization to include e-commerce applications for interacting with customers and suppliers. Thus convergence on ERP solutions within industries is intensifying, and entire supply chains are controlled by a handful of large vendors. The scope of ERPs within individual organizations is also expanding. Today, many ERP vendors are focusing efforts on providing standardized processes and software for business analytics and knowledge management. These processes are designed to utilize the massive data structures underlying ERPs and are combined with standardized templates for business

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modeling, analysis, and reporting, providing guidance bounded by tight constraints on organizational decision-making processes. While the lifeworld effects of these developments are unknown and under researched. What is clear is that the reach of these systems is expanding and the resulting effects are becoming more severe. CLOSING REMARKS ERP systems are viewed by top managers and other organizational constituents as objective responses to technological conditions and economic competition. These systems are widely viewed as politically neutral instruments that can be abstracted from consideration of the fundamental issues of exploitation and control. Because these instruments are viewed as politically neutral, their effects on the background knowledge and communal interests of ERP users and other affected parties are often overlooked. This preceding discussion uses Habermasian principles to explore the forces that lead to ERP adoptions and to examine their consequences. The institutionalization of ERP systems among most large firms and major industries is a result of a combination of complex and powerful forces. Firms in capitalist environments face continual pressure to maximize profits and enhance wealth. ERP systems are viewed as mechanisms that rationalize processes, reduce workforce, and enhance productivity, among other benefits. They are viewed as inevitable technological advances that must be adopted by firms seeking to remain at the forefront in the modern business environment. Institutional forces that reward firms for mimicking the most successful firms in their industries and industrial forces that reward firms which use standard transactional protocol also promote ERP use. Alliance partners, especially professional service firms, play on psychosocial factors promoting ERP systems as a management advancement that

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is both rational and progressive. All of these forces combine to promote continual growth in ERP use among new adopters as well as expansion among existing users. ERP systems are adopted by top management with the objective of imposing a variety of changes upon the organization. These administrators seek personnel and cost reductions and associated improvements in productivity and profits. ERPs promise to deliver these outcomes by integrating systems, standardizing processes, and providing organizations access to the best practices in the industry. In actuality, the consequence of ERP systems is that processes which evolved over time following unique historical paths and trajectories are been replaced by new processes. In general, adoption of the ERP framework and the associated mindset more emphatically imposes administrative interests on to the organization. However, the new ERP processes and the policies and structures driven by them embody the beliefs and interests of actors who developed the software and are not part of the organization. The use of consultants to help choose from among available processes and configuration options further embeds outside interests (or disinterests) into the organization’s operations and systems. Imposing such steering mechanisms on organizational constituents can have broad and serious effects on the lifeworld. The background knowledge and patterns of interaction taken for granted by organizational participants are disrupted and replaced through these system-oriented changes. ERP systems impose radical changes on the everyday work lives of organizational constituents. Interaction between employees and among stakeholder groups is altered, reducing opportunities for collaborative discourse. The nature of social integration is transformed as communication is standardized and mediated through the system. Organizational goals and reporting language shift, changing perspectives regarding work objectives and subordinating objectives not in concert with those of the ERP systems. Employees adapt to these global and

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tightly interwoven changes to avoid the risk of sanctions in the newly competitive and downsized organization. Through these developments, organizational participants lose the capacity to engage in cooperative social action and future evolution of the lifeworld is obstructed. This discussion is a preliminary attempt to use Habermasian principles to explore the context and consequences of ERP implementations. As the forces toward ERP adoption and further standardization across industries and supply chains marches forward, changes in the everyday lives of those affected by these systems become more pervasive and profound. It appears to us that Marcuse’s observation presented at the beginning of the discussion is being magnified as we move further into the information age. ERP systems are the manifestations of prevalent thought and behavior represented in the devices, contrivances, and instruments that characterize the “information age” and dictate the mode of production. As such, this technology as an instrument for control and domination imposes a mode of organizing, perpetuating, or changing social relationships such that they conform to the dominant ideology of global market capitalism. Research on these systems is still in its infancy, but the sheer size and impact of the phenomena warrants studies that go well beyond technical efficiency and economic goals.

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