A Review of Readiness Assessment of ERP Implementation in Iranian Small and Medium Enterprises

Transcription

1 A Review of Readiness Assessment of ERP Implementation in Iranian Small and Medium Enterprises Majid Aarabi Department of Industrial Eng., Shiraz Branch, Islamic Azad University, Shiraz, Iran Mahboobeh Mohammadkazem Mazandaran University of Science and Technology, Iran Abstract Enterprise Resource Planning (ERP) has been used in developed countries to integrate the information and to support decision making in business improvement and competition globally. These systems are one of the latest information technologies which can help SMEs to overcome their limitations. Many Small and Medium Enterprises (SMEs) have difficulties when implementing and adopting the ERP systems that resulted in failures. However, due to the limited resources in small and medium enterprises, if the implementation project is unsuccessful, the chance of surviving or re-achieving the previous status seems to be unlikely. Therefore, introducing and knowing of the current models for assessing the readiness of SMEs which take into consideration the specific characteristics can be significant for improvement of ERP systems success. This paper reviews the models of assessing the readiness of small and medium enterprises. In this review, EFQM-based, 7S McKenzie-based, Fuzzy logic based and INQA models in particular area for ERP are reviewed and a comparison between them was carried out. Keywords: Enterprise Resource Planning (ERP), Small and Medium Enterprises (SMEs), Enterprise Readiness assessment, Iranian National Quality Award Model (INQA). Field of research: Business Management (Management Information Systems) 1. Introduction Complex and fast changes of recent decades and the accelerating process of Globalization have caused that various Communities try to prepare themselves for accepting the evolution more than before. Establishing and active keeping of big companies were a great economic privilege during the last decades. But recent changes especially momentary innovations, More complex management processes and decision making, instant decisions making Necessity and resulted experiences of Small and Medium Enterprises (SMEs) activities represent the importance of these enterprises and led to small and medium industry development as a future decades economic development code. However, the small and medium industries have limitations and problems that should utilize new technologies for surviving themselves against the large competitors of market and used them to overcome their uneconomical scale. Logical investment on new technologies enables the economic enterprises to become tough leaders and competitors inside their own industry. Among the Myriad benefits of technologies, we can mention to performance and efficiency increases, Production quality improvement, taxes reduction, long-term costs reduction and Competitiveness increase. Enterprise resource planning systems (ERP) such as information technologies are at Organizations changes which aim to penetrate information technology at all steps of an enterprise activities. This system can be defined as an integrated application with various modules in the areas of operations, including planning, manufacturing, sales, marketing, distribution, accounting, human resources management, project management, inventory ISSN: Page 17

2 management and e-commerce. The architecture and construction of enterprise resource planning systems provide the integration and information comprehensiveness and the smooth flow of information between different parts of the enterprises. Competitive business environment, need for inter-organizational and intra-organizational integration in supply chain and great development in IT systems technology area are the main factors of ERP formation. These systems increase the operational efficiency and effectiveness of organizations by providing inter-organizational and intra-organizational integration of operation and management, and business processes facility prepare them for competitive market. This issue has a great importance in SMEs due to the limited resources. However, compared to large enterprises, SME primarily Have different environments with specific SME characteristics and because of these inherent differences, research findings in ERP implementation for large enterprises have not been applied to SME completely. For this reason, the aim of this research project is representing a model for assessing the readiness of SMEs for ERP implementation in which the characteristics and special critical success factors of this industry will be considered. The strengths, weaknesses and improvements will be identified during this INQA based model performance. Thus, SMEs will be prepared For ERP implementation step-by-step. 2. Enterprise Resource Planning Systems Different countries use different definitions for SMEs. SMEs constitute over 90% of businesses, and they are significant account for a both turnover and employment percentage (Beaver and Prince, 2004, Meckel et al., 2004, Eurostat, 2004, Walsh et al., 2010, Bannock, 2005, Bannock and Daly, 1994, Stokes and Wilson, 2010). SMEs employ generalists rather than specialist staffs (Thong, 2001, Wong and Aspinwall, 2004, Yusof and Aspinwall, 2000, Gable and Stewart, 1999). Generally, the SMEs organizational structure is simple and based on the Chief Executive Officers (CEOs), who are usually the owners of the enterprises and make the most of the critical decisions (Cragg et al., 2011). The process of decision making in SMEs is without full awareness of information and less dependent on formal decision models (Lynch and Wilson, 2009) and more based on individual experiment (Cragg et al., 2011). Short-term planning rather than long-term strategic planning, less complex interorganizational and enterprise-wide communication, fewer bureaucratic procedures, and more organizational flexibility are some other distinctive characteristics of SMEs (Cragg et al., 2011). Other differences of SMEs and large firms are including their workflow, levels of hierarchy and corporate culture (Walsh et al., 2010). Furthermore, most of SMEs do not use the scientific and management techniques such as project management, financial analysis, and forecasting (Heng Wang and Hou, 2012). Due to the distinct differences between SMEs and large firms, research findings based on large enterprises cannot be generalized for SMEs (Kale et al., 2010). There is a need to study SMEs separately rather than dealing with large enterprises together Haddara and Zach, 2011; Kale et al., 2010). Considering the different definitions of SMEs in Iran, the European Commission (EC) definition of SMEs (Damaskopoulos and Evgeniou, 2003, Ale Ebrahim et al., 2009, Ale Ebrahim et al., 2010b) was chosen for this research (Sevilla and Soonthornthada, 2000, Ale Ebrahim et al., 2010a, Ale Ebrahim et al., 2009). ERP systems are integrated sets of programs or modules that provide support for core business processes, such as finance and accounting, sales and marketing, production planning, human resources, and input/output logistics. An ERP system helps different parts of an ISSN: Page 18

3 organization to use an integrated data system to improve management of business processes and reduce costs (Aladwani, 2001). Wier et al. (2007) argued that ERP systems aim to integrate information and communication technology (ICT) and business processes into a synchronized comprehensive approach of applications and procedures which improve the firms tasks. Kumar and Hillegersberg (2000) defined enterprise resource planning (ERP) systems as "configurable information system packages that integrate information and information-based processes within and cross-functional areas in an organization". Shang and Seddon (2000) presented 21 ERP benefits categorized across five dimensions which are illustrated in Table 2.1. Companies, large or small are looking for ways to reduce the costs of their operations and production; therefore, SMEs are moving towards ERP packages to streamline their operational activities and costs (Dixit and Prakash, 2011, Haddara and Zach, 2011, Brown, 2006, Ganesh and Mehta, 2010, Ghobakhloo et al., 2011, MacGregor and Vrazalic, 2004, Taylor and Murphy, 2004). The motivations for ERP implementation in SMEs and large enterprises are not so different. It means SMEs have the similar needs as large enterprises, but SMEs face different challenges with large firms in view of their specified characteristics (Koh et al., 2006). In addition, with regard to the differences between SMEs and large enterprises, research is required to provide guidelines for ERP systems in these enterprises to develop agility, flexibility and capabilities to evolve with the dynamic changes of a company (Shehab et al., 2004). The SMEs use ERP systems as a guideline to make decisions and generate a plan for production (Koh and Simpson, 2007). Although the ERP projects are especially challenging to be conducted in SMEs (Haddara and Zach, 2011), the likelihood of SMEs to implement ERP systems is increasing according to Nach and Lejeune (2008). Generally, SMEs tend to adopt new technologies only after large firms do this (Poba- Nzaou et al., 2008). It is important to know that one of the major reasons of failing to adopt advanced technologies in SMEs is the lack of clear guidance and project management knowledge (Snider et al., 2009, Thomas, 2007, Iskanius, 2009). Furthermore, there is evidence to suggest that there are significant differences in the barriers facing the implementation and adoption of the IT based systems in developing countries with developed economies. Kartiwi and Robert (2007) studied the barriers of developed and developing countries in the adoption of e-commerce in two different cases. They found that technical and organizational barriers are very significant in developing economies. These differences were supported by Zaied's findings (Zaied, 2012). His results showed that the technical barriers in SMEs of developing countries are more significant than the SMEs in developed countries. Further research in different developing countries also showed and approved these differences. The network and internet speed and security and culture in IT usage are some other barriers encountered in developing countries (Hunaiti et al., 2009, Huang and Palvia, 2001). Mohammad and Ismail (2009) reviewed previous research about the e- commerce and IT services in SMEs of developed and developing countries. They found significant differences in this area: slow acceptance and progress in usage, inconsistent practice across developing countries in IT approaches, and impact on firm performance ERP Systems in small and medium enterprises Globalization at industry have caused that there exist no small industry concept at operational area. At Organizing and Guiding, companies with little financial power, employees or customers should act as large companies. Although these companies work as a small part of ISSN: Page 19

4 supply chain, they are in global markets. Therefore, it is necessary to improve their competitiveness continuously and gain their rights in global markets (Shehab et al., 2004). This is the main reason for the ERP usage in the small and medium enterprises (Ganapathy and Raju). Since the major part of large companies have benefited from ERP systems and the market of this system is somewhat saturated, producers had thought to provide systems that are appropriate with the requirements of small and medium enterprises. For this reason, to fit the system with conditions of these enterprises, Sellers reduce the Complexity level and implementation cost and created appropriated conditions for the use of these systems which led to increased demand of SMEs for implementing ERP. This technology in costs reduction, expectations growth management, on time decision making on the basis accurate information, accountability time improvement to customers, easier business performance will help SMEs. While SMEs have different challenges compared to large companies for ERP implementing. Comparison of critical success factors between SMEs and large companies has shown that there exist significant differences between this two enterprise categories in developing countries and the rate of importance factors are different. So, considering the features and specific conditions of these enterprises during ERP systems implementation will be necessary ERP in SMEs SMEs are encountering a rapidly changing global market and the need to be able to respond to the requirements. ERP systems prepare the instrument for SMEs to address the competitive demand for the rapidly changing marketplace. It helps them achieve success in terms of improved customer relations and management (Kale, 2000, Haddara and Zach, 2011). Cycle time reduction, quality improvement, sales volumes increasing, manpower reduction and market share improvement (Kale, 2000, Haddara and Zach, 2011) are some other achievements of ERP systems. Kale (2000) acknowledges that SMEs have modest IT/IS resources and budgets and thus expect to benefit rapidly and largely by implementing off-the-shelf application products like ERP systems. ERP systems have been the domain of large companies, but there is an increasing number of small and medium-sized enterprises (SMEs) adopting them as well. There are some reasons for this trend including, saturation of the market, successful implementation in large organizations and increasing the possibility and the need for the integration of systems in SMEs (Gable and Stewart, 1999). Chan (2008) claims that many SMEs either do not have sufficient resources or are not willing to use a huge fraction of their resources for ERP implementation. The lack of resources and strategic planning of information systems (IS) (Ballantine et al., 1998, Levy and Powell, 2000, Haddara and Zach, 2011, Ghobakhloo et al., 2011, Dixit and Prakash, 2011, Huin, 2004) and the limitation of expertise in IT (Levy and Powell, 2000, Ghobakhloo et al., 2011) are the factors that strongly influence ERP implementation and usage by SMEs. These factors are described in sections 2.11 and Considering the necessity to find capabilities of ERP solutions at an affordable price, some ERP vendors have turned attention toward SMEs (Rao, 2000, Gable and Stewart, 1999, Dixit and Prakash, 2011). They offered simplified and cheaper solutions (Kirchmer, 1999) from both the organizational and technological points of view, preconfigured systems at a fraction of cost and implementation time Implement readiness assessment of enterprise resource planning systems Despite many benefits of enterprise resource planning systems implementation, in some cases, creation of such system seems complicated. Global statistics represent that more than 50 percent enterprises failure are due to lack of adequate feasibility toward implementing enterprise resource planning systems (Davenport et al., 2004). Consequently, the lack of preparation of this implementation can lead to loss of many valuable resources in the ISSN: Page 20

5 enterprise. This issue will be more critical when the small and medium enterprises are considered, because these kinds of enterprises have limited financial and human resources compared to larger companies. And if the implementation fails, chance of staying or regaining previous situation seems unlikely. Therefore, readiness assessment of enterprise for implementing ERP before the implementation would be necessary and can support the enterprises from failures caused by lack of their readiness in implementation. Brief descriptions of available models about readiness assessment of enterprise are provided in following section. EFQM-based Model: In 2008, a model based on EFQM excellence Model to evaluate the enterprise's readiness for implementing ERP Was presented (Shafaei and Dabiri, 2008). The model consists of six criteria to evaluate the readiness of enterprise including: leadership, policy and strategy, people, partnerships and resources, processes and IT. According to the researchers, one of the main benefits of EFQM-based model is that this structural model has been developed based on experience and can be used to evaluate well. 7S McKenzie-based Model: This model is another model for assessing organizational readiness of ERP implementation which was presented in 2011 (Hanafizadeh and Ravasan, 2011). In this model, areas of weakness in every dimension of 7S McKenzie model (strategy, structure, systems, skills, style, staff and shared values) were identified, preparing plans to cover its weaknesses will be considered before system implementation. Fuzzy logic based Model: In 2010, a study was carried out in which IF-Then Fuzzy rulesbased approach had been used for assessing the enterprise's readiness to implement ERP (Mottaghi and Akhtardanesh, 2010). This model categorizes critical success factors into three groups: strategic, tactical and operational and according to these three groups fuzzy rules (IF- Then) were determined. In this model, features and status quo conditions as fuzzy system input and measurement indicators as output of the system are considered. 3. Reason of INQA model selection Among this model, another model with the name INQA has been used in Iran as Iran national quality award which has the most adaptation with EFQM model and solved the EFQM model problems in relationship with SMEs. Table 3 Checks some proposed problems in EFQM model for evaluation of enterprise s readiness and their Solution in INQA Model. Iran national quality award model is designed according to the economic, social and cultural characteristics of the country and also features of Iranian enterprises by exploiting today knowledge management. It is a purely national model which has usability for foreign enterprises. Symbol of this model is a wheel which is designed as a symbol of motion. The model has seven standard criteria; four enablers and three results. Considering the model scoring based on European enterprises conditions. Iran national quality Award has changed based on necessity and economic, social and cultural needs. Scores of each criterion based on the developing needs of country. [20] large amounts of data collection from different parts of an enterprise In EFQM quality model, whole parts of an enterprise are evaluated. But in Iranian model, the approach of a product, enterprise service will be examined. [20] These trends are shown in Figure 2. This issue makes it possible that SMEs consider the amount of available resources to examine an enterprise part by part, and move towards success and excellence step by step. In this case, there is no need that an enterprise evaluates all part of an organization by spending too much time and high cost in specified period. Iranian SMEs do not accept the EFQM model and the lack of presence at awards process One of the main reasons for Iranian national quality award change from EFQM to INQA is participation increase of small and medium enterprises in the process of the national quality award.[58] Issue 1 Resolvent Issue 2 Resolvent Issue 3 Resolvent Table 3: Reasons of INQA model selection ISSN: Page 21

6 Figure 2: Participate in National Quality Award with self-report about a special product First enabling criterion is "leadership", which is located in the middle of the model; three other enabling criteria are "process", "resources" and "employees". The three results the criteria are "customers and consumers results as the key stakeholders of enterprise, "Environment and Society results and finally "performance results", which includes financial and non-financial results. Employees results are the most important part of the enterprise assets. Rotational motion of the wheel starts from innovation and invention factor alongside of enablers toward the learning factor alongside of results and continue in the next cycle by learning effect on innovation. If its leadership factor is strong, the movement never stops. The principles and values of this model are standards ISO that SMEs have the most acceptance [18], EFQM evaluation model which is used for assessing the readiness of the enterprise, four-course holding experiences, evaluation model of quality comprehensive design and opinions of experts and specialists. These principles could be one of the reasons for suitability of this model for evaluating SMEs readiness. 4. Conclusion Due to stratification and scoring current status of enterprises and also prediction of how the events of factors affecting successful ERP implementation, this model was Presented based on INQA model. The results of investigations presented in this paper confirmed the enabler criteria of INQA model. The results show that a framework similar to INQA model can be used as an adequate basis for evaluating enterprise's readiness to implement ERP system. If an enterprise has a suitable situation during the evaluation of the INQA model in a criterion, it is expected that the fault factors do not encountered with major problems during the ERP project. One of the main advantages of the INQA model as structured model which is developed based on experiences and can be used to evaluate well. References [1] ALADWANI, A. M Change management strategies for successful ERP implementation. Business process management journal, 7, [2] ALE EBRAHIM, N., AHMED, S. & TAHA, Z. 2010a. Critical factors for new product developments in SMEs virtual team. African Journal of Business Management, 4, [3] ALE EBRAHIM, N., AHMED, S. & TAHA, Z. 2010b. Virtual R&D teams and SMEs growth: A comparative study between Iranian and Malaysian SMEs. African Journal of Business Management, 4, ISSN: Page 22

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