Factors Influencing Selection and Effective Implementation of ERP Systems in Medium Sized Organizations in Developing Countries

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1 Factors Influencing Selection and Effective Implementation of ERP Systems in Medium Sized Organizations in Developing Countries Samudaya Nanayakkara Prasad Perera and Asoka Perera University of Moratuwa, Sri Lanka Abstract: Information Technology (IT) and Information Systems (ISs) compose a critical role in today s business environment. Enterprise Resource Planning (ERP) systems are the most cutting-edge IS in present business environment. By bringing a company s different functions together into one large integrated system, an ERP system creates a plethora of opportunities for growth and increased productivity. Medium sized enterprises in the developed world are well ahead in their usage of ERP systems. However, the available studies pertaining to the use of ERP systems in developing countries reveal that, the medium scaled businesses in Sri Lanka are far behind in adaptation of ERP systems. Literature reveals that there are many significant contributing factors that effect selecting and implementation of ERP systems in medium sized organizations in developing countries. This researchis mainly based on qualitative research methodology. Primary data were collected from medium sized industry and their Information Technology (IT) experts though interviews. The objective of using the qualitative research was to find out common and main barriers and their effect to implementation and adaptation of ERPs. Furthermore, secondary data such as Literature was also contributory to the main outcome and results. Influencing factors that analysis research results reveal new way of rationale for selecting and implementation of ERP systems in medium sized companies in developing countries. Results in summary; higher influencing factors in selecting process are Vendor/Software Reputation, Alignment with Business Function, Cost and C-level Officers' countenance. And as this research identifies important factors influencing success of implementation and 7

2 Factors Influencing Selection and Effective Implementation of ERP Systems in Medium Sized Organizations in Developing Countries adaptation of ERPs are Alignment with Business Function, Support and Training, Usability and User friendliness, Implementation Team, Vendor-Employee Interaction and C-level Officers' countenance. In other words this research shows that not only a single IT domain s factors can influence in success of ERP selection and implementation but also and it is essential to manage modern processes with interdisciplinary comprehension. Keywords: Information Technology, Enterprise Resource Planning, Medium Scale Business, Influencing Factors I. INTRODUCTION Most of the manufacturing oriented organizations in the globe especially in the developed countries have moved on with implementing ERP systems, and some of them are gaining gigantic benefits. The ERP systems are typically the largest, most complex, very expensive and most challenging Information Systems (IS) implemented by firms, representing a significant departure from the individual and departmental ISs prevalent in the past. ERP systems are most popular in Energy, Materials, Capital Goods, Automobiles and Components, Consumer Durables and Apparel, Consumer Services, Transportation, Retailing, Food, Beverage and Tobacco, Technology Hardware and Equipment, Finance, Utilities and many more industries. However service organizations yet to understand the full potential and the main reason behind this is lack of knowledge and understanding about the benefits of an ERP system to such organizations [1]. Two main motivations impact to the improvement in IT usage in the globe, in the last two decades, especially effecting to the developing countries. Cost of Information and Communications Technology (ICT) became more and more inexpensive and affordable to many industries [2]. Open Source paradigm became more popular and more advance enough to offset Proprietary Software [3]. The paper begins by briefly discussing ERP and medium sized organizations in the developing countries. It then introduces the research context and methodology. After briefly outlining the research approach, the findings on how factors influence success of ERP is discussed. Based on the data analysis, this qualitative research determined what are the factors influencing selection and effective implementation of ERP systems in medium sized organizations in developing countries. II. ERP SYSTEMS ERP evolved from the concept of MRP and MRP II systems since the end of The term ERP was invented in the 1990s by the Gartner Group. Built on the technological basis of MRP and MRP II, ERP systems with the ability to create enterprise-wide crossfunctional business processes and provides real-time accessibility, visibility and consistency across the organization. In late 1990, ERP vendors began adding more modules and functions such as add-ons "to address business processes, such as financial International Journal of the Computer, the Internet and Management Vol.21 No.2 (May-August, 2013) pp

3 Samudaya Nanayakkara, Prasad Perera, and Asoka Perera transactions, the birth of the concept of" ERP II ". The evolution of the ERP reflects the fact that many non-manufacturing sectors began to adopt ERP systems for the financial business, accounting and others. The ERP extensions include SCM, CRM, APS, and e-business functionalities [4]. available. Some of the leading Open Source ERP systems include Openbravo, ERP5, OpenERP, weberp, Dolibarr, Apache OFBiz, Opentaps, PostBooks Adempiere and Compiere [9], [10]. Table II [8] and Table III [8] demonstrate average implementation cost (USD) and average implementation duration (months) by variance industries in III. FACTORS INFLUENCING SELECTION AND IMPLEMENTATION OF ERP SYSTEMS Fig. 1 Reasons for Implementing ERP [5] Findings from a one recent market study shows that the global ERP software market to grow at a CAGR (compound annual growth rate) of 7.5% over the period [6]. Figure 1 shows main reasons for implementing ERP and Table average payback periods. I shows TABLE I AVERAGE PAYBACK PERIODS [7] Year Payback Duration Months Months Months Months Proprietary ERP systems such as SAP ERP, Oracle E-Business Suite, Microsoft Dynamics, Sage ERP, ProcessPro and IFS ERP hold largest market share in ERP domain [8]. However, within the last decade Open Source ERP applications are clearly growing and acquiring the ERP market. Presently hundreds of Open Source ERPs are Choosing an ERP to use within an organization is a complex decision that has significant economic consequences, thus it requires a proper analysis. [11] defined fifteen criteria should be addressed in selection process under Technology-Related, User-Related and Vendor-Related categories. Those important fifteen factors are Customization, Real Time Changes, Implementability, Maintenance, Flexibility, User Friendliness, Cost, Systems Requirements, After Sales Support & Training, Internet Integration, Reporting & Analysis Features, Vendor Credentials, Integration with Other Software, Back-up System and Financing Options [11]. [12] explained twenty key success factors. Those Team Work, User Involvement, Use of Consultant, Clear Goal and Objective, factors are Top Management Support, Project Budget, Project Time, Organization Maturity Level, Culture Readiness, ERP Implementation Strategy, ERP Implementation Methodology, Project Management, Change Management, Risk 9

4 Factors Influencing Selection and Effective Implementation of ERP Systems in Medium Sized Organizations in Developing Countries Management, Business Process Reengineering, Data analysis and migration, Communication, Training, Technology Infrastructure and Strong ERP product [12]. IV. MEDIUM SIZED ORGANIZATIONS IN THE DEVELOPING COUNTRIES and have, in most cases, a medium to low standard of living. There is a strong correlation between low income and high population growth and some key indicators of their relative sized (GDP valued by PPP, total exports of goods and services, and population) [13], [14]. The country classification in the World Economic Outlook divides the world into two major groups, advanced economies countries, and emerging and developing economies countries also called a lessdeveloped country (LDC). Developing countries are, in general, countries that have not achieved a significant degree of industrialization relative to their populations, There is no clear global definition for medium sized company or organization, however some key indicators are used to classify the category of the organization are number of employees, investment, investment in plant and machinery, staff headcount, annual turnover and annual balance sheet [15]. For an example, in Sri TABLE II AVERAGE IMPLEMENTATION COSTS BY INDUSTRY AND ANNUAL REVENUE (IN MILLIONS) TABLE III AVERAGE IMPLEMENTATION DURATION BY INDUSTRY AND REVENUE (IN MILLIONS) International Journal of the Computer, the Internet and Management Vol.21 No.2 (May-August, 2013) pp

5 Samudaya Nanayakkara, Prasad Perera, and Asoka Perera Lanka defines medium sized organizations as consisting of numbers of employees [16]. Nevertheless, Micro-enterprise, Small enterprise, Medium enterprise and Large enterprise are commonly used organization categories globally. V. RESEARCH APPROACH AND METHODOLOGY A number of ERP systems were implemented in medium sized organizations in Sri Lanka within last decade. There are a substantial number of ERP systems implemented in manufacturing, service and construction industries. A mix group of different industries was selected for this study. Qualitative exploratory methodology of in-depth interviews was used to identify experiences and perspectives of relevant industry s IT Expert (n=13) in terms of factors influencing ERP selection and implementation. The data were collected over the period of three months. Each interview lasted on an average for about one hour. During the interviews and discussions detailed notes were taken and interviews and discussions were audio recorded for analysis purpose. The research design assists participants to express their inner views and perspectives of what and why a particular factor influences selection and successful implementation of ERP system rather than results obtained using less meaningful labels such as yes or no. Analysis was run in four phases and used a coding system to generate similar codes, themes and categories supported by SQR Nvivo 07 software. VI. ANALYSIS Analysis of interview transcripts consisted of four phases. In the stage one, data were organised by coding, and developing summaries of information. Interview data were analysed in the stage two to generate categories, themes and patterns. In the stage three of the analysis process, similar scenarios were identified using relevant TABLE IV SUMMARY OF THE ANALYSIS FOR SELECTION PROCESS TABLE V SUMMARY OF THE ANALYSIS FOR IMPLEMENTATION PROCESS 11

6 Factors Influencing Selection and Effective Implementation of ERP Systems in Medium Sized Organizations in Developing Countries literature. Final stage of the study involved writing the research paper. Findings revealed 16 factors influencing the selection process of ERP systems and 19 factors influencing the successful implementation of ERP systems in medium sized organizations in developing countries. All the factors were broadly categorised into Major, Moderate and Minor based in their influence level. Table IV and V demonstrates a summary of the analysis. A. Vendor/Software Reputation One of the factors influencing selecting ERP system is high level of Vendor/Software Reputation [11]. Same as [11] explained, this research also identified Vendor/Software Reputation as one of the key influencing factors to the selection process and reflected as the major influence level. However, in the implementation stage, the influence of the Vendor/Software Reputation has only a minor impact level. B. Align with Business Function One of the factors influencing selection of ERP system is higher level of Alignment with Business Function. [11] implies similar scenario by evaluating Flexibility and Systems Requirements aspects. [12] suggests that ERP - Business Alignment is a success factor in the implementation stage. The present study identified that Aligning with Business Function as one of the key factors influencing the selection and also successful implementation process and reflected in the major influence level. C. C-level Officers' countenance One of a main finding of the present study is C-level Officers' (especially CEO, CIO, COO and CFO s) countenance and support. Findings revealed that C-level Officers' countenance and supports is one of the major factors influencing the ERP selection and also in successful implementation process. Most of the participants strongly mentioned the importance of the C-level Officers' countenance and support in the selection and successful implementation processes. D. Cost [11] discussed the importance of Cost factor in the selection process and [12] identified the importance of Cost factor in the implementation process. However the present study reveals the same factor in two different impact levels in the selection and implementation processes. Cost is one of the major factors in the selection process and it becomes a moderately influencing factor in the implementation process to be successful. E. Support and Training, Usability and User friendliness, Implementation Team and Vender-Employee Interaction Support and Training, Usability and User friendliness, Implementation Team and Vender-Employee Interaction are some influencing factor to the effective selection and implementation processes [11], [12]. However one of the main findings of the present research is that neither of these factors was considered as a major factor in ERP International Journal of the Computer, the Internet and Management Vol.21 No.2 (May-August, 2013) pp

7 Samudaya Nanayakkara, Prasad Perera, and Asoka Perera selection process. Nevertheless in the implementation stage these four factors become influencing at a major level to the success of the project. F. Past Experience and Implementation Plan and Duration Past Experience and Implementation Life Cycle are factors influencing a successful implementation processes [12]. However this research identified that Past Experience moderately influence the selection process and also in the success of implementation processes. The present study also reveals that Implementation Plan and Duration also moderately affect the selection and also in the success of implementation process. G. Technology, Level of Customization and Availability of Domain Expert [11] discussed the importance of Technology and Customization in the selection process and [12] discussed the importance of Technology and Customization in the implementation process. One of the key finding of the present research is that Technology, Level of Customization and Availability of Domain Expert have only a minor impact in the selection process. However those three factors moderately influence the implementation process. H. Business Process Reengineering and End-User Interest [12] discussed the importance of Business Process Reengineering and people factors. Another key finding of the present study is level of impact of Business Process Reengineering and End-User Interest in the ERP selection and implementation process. The impact of Re-engineering and End-User Interest are negligible in the selection process. However, those two factors moderately influence the implementation process. I. Financial Options and Additional Functions [11] considered the importance of Financial Options and Additional Functions in the selection process. The present study identifies that Financial Options and Additional Functions are minor impact factors to the implementation process. However, those two factors were identified as moderately affecting the selection process. J. User Agreement and Licenses and Vendor's Business History User Agreement and Licenses are important factors in the selection process. [11]. The present study identified that User Agreement and Licenses and Vendor's Business History are only of minor impact to the selection and implementation processes. VII. CONCLUSION This research revealed 16 factors influencing the selection process of ERP systems and 19 factors influencing the successful implementation of ERP systems in medium sized organizations in developing countries. Those factors were categorised into three broad aspects: Major factors, Moderate 13

8 Factors Influencing Selection and Effective Implementation of ERP Systems in Medium Sized Organizations in Developing Countries factors and Minor factors. The significance of this study can be attributed to the identification of perceived and realistic importance of factors related to the selection and implementation process of ERP. Some of the factors that generally perceived as important in the selection stage were not significantly important in the ERP implementation process. On the other hand, some of the factors that were perceived as least important by the participants when they select an ERP solution were identified as significantly important when it comes to the implementation process. Not only the IT related aspects, but also other dimensions such as finance, human factors, organizational culture and strategy need to be considered to ensure successfully implement ERP solutions. Therefore, it should be carefully viewed that the multi-faceted and multi-dimensional nature of the influencing factors plays a role in today s complex organisational cultures in any project implementation. REFERENCES [1] V. Genoulaz and P. Millet, An investigation into the use of ERP systems in the service sector, Journal of Production Economics, vol. 99, no. 4, pp , [2] ICT for Greater Development Impact, World Bank, Jun [3] J. Lerner and J. Tirole, Economic Perspectives on Open Source, Advances in the Study of Entrepreneurship, Innovation & Economic Growth, vol. 15, pp , [4] ERP Systems Market Primer, Focus Research, May [5] 2013 ERP Report, A Panorama Consulting Solutions, Denver, USA, [6] Global Enterprise Resource Planning Software Market , Research and Markets, Feb [7] 2013 ERP Report, A Panorama Consulting Solutions, Denver, State of Colorado, USA, [8] Preview of Panorama s 2011 ERP Report: ERP Implementation Costs Continue to Decline, A Panorama Consulting Solutions, Denver, USA, Jan [9] S. Floyd, Top Open Source ERP Software, Dallas, USA, Apr [10] T. Herzog, A Comparsion of Open Source ERP Systems, Vienna University of Technology, [11] O. Alanbay, ERP Selection Using Expert Choice Software, presented at the ISAHP 2005, Honolulu, Hawaii, [12] Z. A. Hasibua and G. R. Dantes, Priority of Key Success Factors (KSFS) on Enterprise Resource Planning (ERP) System Implementation Life Cycle, Journal of Enterprise Resource Planning Studies, vol [13] World Economic Outlook, International Monetary Fund, Washington, USA, Apr [14] World Economic Outlook, International Monetary Fund, Washington, USA, Apr [15] G. Verheugen, The new SME definition, European Commission, Jan [16] National Strategy for Small and Medium Enterprise Sector Development in Sri Lanka, Task Force for Small and Medium Enterprise Sector Development Program, Colombo, Sri Lanka, Dec International Journal of the Computer, the Internet and Management Vol.21 No.2 (May-August, 2013) pp