Faculty of Management and Human Resource Development, Universiti Teknologi Malaysia, Skudai, Johor, Malaysia

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1 Proceedings of Industrial Engineering and Service Science, 2011, September Critical Success Factors of Enterprise Resource Planning Implementation in Small and Medium Enterprises in Developing Countries: a Review and Research Direction Majid Aarabi 1, 2 *, Muhamad Zameri Mat Saman 1, Kuan Yew Wong 1, Hooshang M. Beheshti 3, Norhayati Zakuan 4 1 Department of Manufacturing and Industrial Engineering, Faculty of Mechanical Engineering, Universiti Teknologi Malaysia, Skudai, Johor, Malaysia 2 Department of Industrial Engineering, Shiraz Branch, Islamic Azad University, Shiraz, Iran 3 College of Business and Economics, Radford University, Radford, VA 24142, USA 4 Faculty of Management and Human Resource Development, Universiti Teknologi Malaysia, Skudai, Johor, Malaysia majidnp@gmail.com ABSTRACT Enterprise resource planning (ERP) systems are implemented to increase the productivity and operational efficiency of corporations. ERP implementation projects are considered difficult and risky because these projects are large in scale and in most cases they bring about changes to the structure of organizations, culture and processes. In fact, the list of failing ERP projects in enterprises is quite long. There is lack of study on the failure and success factors of ERP implementation in small and medium-sized enterprises (SMEs). In addition, SMEs play an important role in the economic development and prosperity of many nations in today's highly competitive and global marketplace. ERP vendors are preparing their systems to meet the demands of SMEs, it can be presumed that the ERP implementation as a business solution for these enterprises will be increasing in the future. Hence, the purpose of this paper is to provide a review of the literature with regard to ERP implementation in different regions in the world for finding the critical success factors (CSFs) of ERP implementation for SMEs in developing countries. The aim of this paper is to suggest a foundation for discussion of the importance of CSFs of ERP implementation in order to improve the success rate of ERP implementation in SMEs in developing countries. Keywords: Enterprise Resource Planning, ERP, Critical Success Factor, CSF, Small and Medium Sized Enterprise, SME. 1. Introduction Enterprise Resource Planning (ERP) has widely been used in developed countries all over the world to streamline processes and for achieving process improvement and global competitiveness. But in recent years ERP vendors are trying to overcome the economic, cultural and basic infrastructural barriers concerning the implementation of ERP in developing economies. By implementing ERP systems (as the most popular enterprise wide information technology (IT) solutions), small and medium sized enterprises (SMEs) are giving themselves a chance to emerge as big players in the global market [1]. For developing countries, ERP system implementation is in its early stage. It has been found that reasons like limit of capital, non-availability of resources, poor management base, and absence of IT expertise are seriously affecting the implementation and adaptation of enterprise system in developing countries compared to the developed countries. There are many research papers that are devoted to the SMEs, use of ERP systems in developed countries but not enough attention has been paid to the ERP usage in the SMEs of developing countries. prosperity. ERP is one such system for which a lot of resistance is offered in organizations for implementation due to higher investments and more failures associated with it. The study of ERP implementation issues is necessary to encourage and persuade small and medium scale industries to go for ERP implementation as ERP is vital for their future Copyright 2011 IESS.

2 growth. The objective of this paper is to identify the critical success factors (CSFs) for ensuring successful implementation of Enterprise Resource Planning (ERP) packages in SMEs of developing countries. In the following sections, first the effects of SMEs in global market will be stated and then the importance of the CSFs in ERP implementation of SMEs in developing countries will be reviewed. 2. Small and Medium Enterprises (SMEs) SMEs constitute over 90% of operating businesses in many countries, there is a great need for more rigorous research that is relevant to this important sector of the economy [2]. SMEs as a proportion of all businesses account for a large percentage of both employment and turnover [3,4]. Due to the inherent differences between SMEs and large businesses, research findings based on large businesses cannot be generalized to small businesses [5,6] ERP systems in SMEs In recent years, SMEs are impacted by the rapidly changing marketplace and their own ability to respond to these changes. ERP systems provide the platform for SMEs to address the competitive demand for the rapidly changing marketplace and to be successful in terms of: "improved customer relations and management, improved cycle time, improved quality, increased sales volumes, improved margins, reduced product development time, reduced manpower for routine o ems (IS) partnerships, enterprise resource planning (ERP) implementation has been an important activity for improving supply chain efficiency in SMEs [8]. Increasing reliance on SMEs by large companies caused SMEs to become the target of ERP vendors [9]. Even though ERP systems were initially thought to run on large scale enterprises, SMEs are increasingly motivated to introduce ERP implementation [10]. As companies grow in size and improve performance, they are most likely to have invested in ERP system that will grow with them. As mid size companies grow, they must learn to operate in a distributed environment and often experience proliferation of ERP and other enterprise applications [11]. Many ERP vendors have been moving their attention toward SMEs [12] by providing simpler and cheaper solutions [13] from both the organizational and technological point of view and Pre-configured systems based on best practices at a fraction of cost and time originally required for implementation CSFs of ERP in SMEs of developing countries There are a number of researches that studied on the CSFs of ERP systems in developing countries. Huang and Palvia [14], showed that in most developing countries, ERP technology faces additional challenges. ERP is in its early stages in developing countries. Inadequate IT infrastructure, governmental policies, small size of companies, lack of IT/ERP experience, and low IT maturity seriously affect the adoption decision. According to Nah and Lau [15], ten success factors have been identified by analyzing ten selective articles which are: ERP teamwork and composition, Top management support, Business plan and vision, Effective communication, Project management, Appropriate business and legacy system, Software development, Testing and troubleshooting, Effective decision making and Effective training. Noudoostbeni et al. [16] identified the important success factors and failure factors in Malaysian SME companies and tried to recognize their importance. According to their research, the failure factors in implementation of ERP systems in Malaysian SMEs are: Inappropriate training methods, Poor planning or poor management, Change in business goals during the project, Lack of business management support, Hostile company culture, Improper reporting structure, Inappropriate level of management commitment and Political pressures. Also they explored that the critical success factors and co m- pany, Reasonable expectation with definite targets, Open and honest communication, Group structure, Project management, Enterprise information management, Outside competition pressure, Service of supplier, Software development, Testing and troubleshooting and Effective decision making. Jafari et al. [17], after reviewing 28 articles, identified ten success factors in implementing ERP system in Malaysian companies which are: Support from top management, Clear goals and objectives, Communication, Effective project management, Business process engineering, Data accuracy and integrity, Suitability of software and hardware, Support from vendor, Education and training and User involvement. Upadhyay and Dan [18] tried to identify the factors that the micro, small and medium sized organizations must keep in mind so as to ensure positive outcome of successful implementation of the ERP systems. Based on the responses received from the respondents, their study revealed that for ensuring successful implementation, the following issues are considered as immensely important namely, clarity in goals and objectives behind implementation, adequacy of user training, competency in project implementation team, acceptance of changes brought about by implementation and adequate vendor support and participation of external consultants. Furthermore, Upadhyay and Dan [19] 154

3 explored certain factors that are critical in context to implementation of IT projects. Seven factors have been identified that are: Support from top management, goals and objectives, user knowledge, project champion, project team competency, improve work efficiency, scalability & scope and ERP importance. Out of this the first two are considered as most important. Kale et al. [20], on the basis of case studies of ERP implemented Indian SMEs and in-depth interviews with the ERP vendors, stated some issues in front of Indian SMEs. These are: Awareness, Perception, Earlier implementation, implementation approach, cost, change management and limited resources. Furthermore, the researchers identified some of the factors that must be considered before starting ERP system implementation which include: infrastructure resource planning, proper education about ERP, human resource planning, support from top management, proper training facilities and commitment to release the right people for the implementation. Jing et al. [21] did a similar study for Chinese SMEs to identify the critical issues ensuring the successful implementation of ERP. Their study identified four issues proved to be critical for successful ERP implementation are proper investment decision, participation of departments, proper support from vendor and providing training to the members of the organization. Kumar et al. [22] studied in a medium scale fertilizer industry to prioritize the issues affecting ERP system and the following factors were determined: adequate and correct data, training and testing, never run parallel system, conference room pilot, employee retention, customization, and clarity in management objective and external consultant dependency. Chen et al. [23] studied on the SMEs of Taiwan to investigate how the role of external consultant affects the ERP implementation project. The study explored that the involvement of external consultant along with management consultant in ERP implementation have significant impact on the ERP implementation practice. Also, the researchers have identified that the relationship between external consultants with SME managers highly affect the implementation project. Xia et al. [24] explored the critical success factors of ERP implementation in SMEs of China based on the analysis of the character of ERP marketing and nature of SMEs of China. Six critical success factors of ERP system implementation in SME of China were determined. The factors include: Top management support, Great competence project team, Right implementation scope, Management program change, Data accuracy and Education & training. Dixit and Prakash [25] identified the major factors that can affect ERP implementation namely, the top management, training, the data collection, and Software design and Testing. Jha and Hoda [26] studied on Indian SMEs to categorize the CSFs in these enterprises. They identified some major factors that influence the success of ERP are described as: Accurate expectation, Accurate data, Proper gap analysis, Perfect tuning between IT professionals, Business owners and End users, Considering of Hidden Costs (e.g. consulting, implementation, training, transition, delayed ROI and post implementation support), Accurate Business Processes, Proper Monitoring System Knowledge Base, and Training & Documentation. Table 1 shows the summary of the critical success factors of ERP systems implementation in developing countries. 3. Conclusion This paper discusses the need of SMEs for ERP systems and pointed out that because they are different from large organizations, study on this type of enterprises is necessary. Table 1 shows the list of the critical success factors (CSFs) that cited in different studies of ERP for SMEs. According to Table 1, the most important success factors for ERP im- Copyright 2011 IESS. 155

4 Table 1. CSFs of ERP systems implementation in developing countries and their iterations Su s Top management support * * * * 7 Business plan and vision and clear goals and * * * * * 10 objectives Effective communication and commitment * * * * 6 User knowledge * 2 Project champion * 3 Project management * * 4 Competency in project implementation team * * 4 Business process reengineering * 2 Legacy system * * 2 Suitability of hardware and software * * 3 Testing and troubleshooting * 5 Effective decision making * 2 Effective education and training * * * * * 10 Data accuracy * 5 Vendor support * * * 5 Change management * * 5 Participation of external consultants * 5 of importance. And the third level of importance are Future works can find the effects of critical success factors in each stage of the life cycle for ERP implementation in SMEs. 4. Acknowledgement The authors gratefully acknowledge the IDF financial support from Universiti Teknologi Malaysia (UTM). c- 156

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