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Weekly UpdatesSite A Company-Wide Findings for Propositions 1 & 2
Changes observed at the division level for Site A reflect changes that took place at the company level. Cost accountants at all locations were grouped not by geographic location, but rather by business organizations. Another change was the centralization of cost accounting services. Before the new system was implemented, each manufacturing site had its own information system, developed independently of other systems. Therefore, each site had its own local cost accounting systems expert that would resolve cost issues for that location. The new system was implemented, in part, to establish a globally common means by which to capture transactions. When the new system implementation began, a new group of cost experts was designated to map costing practices from old systems into the new system. This new group (called the Cost Process Technology Center Group, or CPTG) remained after installation of the new system to become cost and systems experts on a global basis for the organization. Currently, this group has a pproximately 20 employees that serve as in-house consultants on costing and system issues for the entire organization.
The number of accountants employed by the company before and after the implementation of the new system was consistent with changes observed at the manufacturing sites. Other divisions of comparable size to Site A have experienced decreases in the number of cost accountants over the same time period. When the corporate directive was issued to decrease headcount in the controller's function because of the pending changes in restructuring and the new information system, site controllers took different approaches to reducing headcount. The controller at Site A aggressively placed his accountants in various positions at other locations (primarily in positions at corporate headquarters). Many of the reassigned accountants at the division were placed in positions in other accounting departments, such as statutory accounting or financial reporting. Some accountants were placed in temporary positions created due to the implementation of the new system. Controllers of other divisions chose to allow natural attrition to lower their headcounts. Companywide, the number of accountants has decreased since the implementation of the new information system.
Site B Company-Wide Findings for Propositions 1 & 2
Consistent with the findings at Site A, management at Site B also reported an overall reduction in accounting-related headcount. The company has five years experience with SAP, as the implementation project began early in 1995. By the end of 1999 the company had 5,000 users in 200 locations across the North American continent. In assessing the overall reduction in accounting overhead costs, we considered the possibility that external consultants may have been substituted for full-time employees. At Site B, management did not rely heavily on external consultants for installing the system, but chose to use internal resources at an estimated project cost of $57 million. In 1995 approximately 20 consultants were on hand when the initial implementation began. After six months only three or four remained; by 1996 all external consultants were gone. Some consultants were hired for their technical expertise in a specific area while others were hired as trainers. Management did not believe significant external assist ance in the area of planning, organizing, managing, and monitoring projects was necessary because the company had managed major projects for years. Key individuals throughout the company were selected to drive the implementation. As a result, problems associated with potential detractors were eliminated. Two types of IT staff, development and support, were used in the system roll-out. Approximately 80 people were involved in custom development to add functionality to the system. In addition, these developers required hardware, communications, and network support from other groups within the company.
Accounting headcount and overhead cost reductions were achieved at Site B by removing activities performed at multiple manufacturing locations and centralizing these functions at one location. The business process reengineering of the finance activities, known by the company as shared services, are as follows: invoicing, warehouse accounting, fleet accounting, accounts payable, travel and entertainment, general ledger, governmental accounting, capital and asset accounting, internal audit staff, accounts receivable, and purchase card accounting. Prior to SAP implementation, the controller at each plant had responsibility for all shared services activities.
The economic advantage of centralizing accounts payable and invoicing activities results from eliminating duplication of effort at numerous sites across North America. However, additional system complexity may require additional effort in the internal audit function. Evidence from Site B indicates otherwise. Interestingly, though the system is more technically complex, the company now requires fewer internal auditors. Before centralizing shared services, auditors would conduct a walk-through at each facility, worldwide, every three years. The new system permits auditors to target sites where problems may occur. According to management, the proactive approach results in better quality audits, less travel, and greater levels of auditor productivity.
A post-project assessment conducted by management at Site B provides evidence of company-wide savings in the finance and accounting functions. Most of the efficiencies were realized through headcount reductions made possible by centralizing redundant clerical accounting activities at 300 locations. Thus, data at Site B support Propositions 1 and 2, suggesting the organizational structure changes and the number of employees decrease with the adoption of a new enterprise-wide accounting system. Prior to the SAP implementation administrative costs represented 1.7 percent of sales. The post-implementation cost approximates 1 percent of sales. Organizational charts indicate multiple levels have been removed from each plant location. For example, seven to eight accounts payable staff members were required at each plant location. After the company centralized the accounts payable function, only three persons were needed. Additional savings permitted by the system include:
* Working capital reduction (savings $10 million). The automated system permitted maximum company- wide purchase discounts and facilitated rapid collection of accounts receivable. Additional savings in accounting-related costs resulted from the "evaluated receipts" process. When invoices are received from approved vendors, the system automatically pays the invoice upon receipt. SAP enabled approximately 55% of incoming invoices to be paid in this manner.
* Purchase leverage (savings $20 million). Negotiating corporate purchasing agreements reduced costs on materials and supplies previously purchased at 300 locations. In addition, for those purchases not covered by corporate agreements, managers at remote locations had immediate access to company-wide pricing information to use as a basis for comparison.
* Capital spending management (savings $5 million). SAP impacts areas external to the accounting process. For example, the system permitted engineers to estimate, plan, and track expenditures against project estimates.
* Transportation leverage (savings $10 million). The system helped managers reduce inefficiencies in the transportation and logistics systems and to negotiate more favorable contract rates.
Summary of Propositions 1 and 2--Consistent with Observations from Site A and Site B
Pinsonneault and Kraemer (1993) and Huber (1990) suggest fewer levels of management are necessary as managers provide the information they need. The global information system implemented by our research sites allows for information access across geographic and business divisions. Therefore, fewer persons are required to accumulate data from multiple sites. Elliott's (1992) hypothesis that networked organizations evolve as a result of improved information systems is also supported in this study. The reporting relationships described above reflect a networked organization where employees no longer are grouped by geographical regions and functional responsibilities. Employee groupings now are based on business units within the organization without regard to either geographic or functional responsibilities. These changes are consistent with a matrix organizational design (Fiedler et al., 1996) where members report both to product and functional leadership. Changes attributed to the new information system appear to support the organizational imperative view of IT induced change. Management's decision to realign by business resulted in fewer levels of management, created new reporting relationships, and reduced the number of employees in the accounting department. The implementation of a new information system is viewed as a crucial means by which these goals were achieved.
This article seeks to understand the change in accounting personnel, in numbers and job responsibilities, following implementation of an enterprise-wide integrated information system. A factor that may obscure the absolute count, system-wide, is the use of external consultants to replace accountants whose positions were eliminated. From a corporate-wide perspective, research Site B experienced only a temporary increase in overall personnel (one to two weeks) as positions were eliminated and consultants were hired to perform specific technical tasks. The majority of new employees and consultants hired by Site A for implementation services no longer work for the organization. Accounting and simple systems issues are handled by the CPTC group created during the implementation of SAP. Site A made the decision to outsource its systems development and critical support needs to a consulting firm that provides assistance with SAP on an as-needed basis.
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