The Evaluation of the Criteria of ERP Selection for Bosnian Companies

Transcription

1 International Journal of Management Sciences Vol. 3, No. 4, 2014, The Evaluation of the Criteria of ERP Selection for Bosnian Companies Zafer Konakli 1 Abstract Information usage of the companies generated a demand for company-wide integration of databases. ERP systems are developed to increase the flow of information among the units on the companies. There are various ERP systems and in Bosnia some the vendors give support. Among the alternatives, in order to select the appropriate ERP system, selection criteria must be determined. In this study, the factors affecting the ERP systems selection are g the analyzed and the relevant criteria are determined with a survey. The significant criteria are selected with t-test, and the correlations among the criteria are analyzed to highlight the inner dependencies. Keywords: ERP selection, vendor attributes, system features, organizational structure 1. Introduction In developing economies, integration of information systems to the regular duties of the companies is inevitable. Improving the competitiveness, efficiency of the workflow and management practices depends on the degree of information system usage. The evolution of the information systems for enterprises started with the MRP, than MRP-2 is introduced, and then ERP solutions are introduced. ERP became a must have system for the companies that want to keep competencies in the market. In the list of the expected benefits, ERP systems offer the customers lowering the costs, increasing the satisfaction of the customers, making the employee jobs easier are some of the well-known. In Bosnia, as an emerging economy due to local and international players and public institutions, the demand to implement ERP systems is rising. ERP systems offer not only compact solutions to the regular tasks of the companies, but also add additional functionalities to the company structure. The issues that the companies are confronting are what are the attributes of the vendors and the features of ERP systems should be considered in the ERP selection and what dimensions of organizational structure effects the implementation success. The alternatives present in front of the companies are, Tier-1 systems which are costly but offer high level of functionality, features and a scope for the company, but beside the expected benefits the high level of cost, the complexity of implementation, disturbances, and high percentage of the failure are the potential payoffs and threats for the implementing company. Likewise, Tier-1, there are potential Tier-2 and Tier-3 systems offering various features and benefits with varying costs.in our study we analyzed another alternative of ERP systems, that the companies are using, that is specific ERP systems developed for companies. Since many of the companies having problem in the implementation and getting the full benefit of it, we analyzed what are the possible reasons of these difficulties. The criteria selected to evaluate the ERP systems are classified into 3 groups as vendor related criteria, system related criteria and organization related criteria. 1 Department of Management, International Burch University, Sarajevo, Bosnia and Herzegovina 2014 Research Academy of Social Sciences 210

2 2. Literature Review International Journal of Management Sciences ERP systems integrate all information flowing into and out of a company's databases (Davenport, 1998), therefore it can be said that ERP is the information backbone of a company that integrates and automates all business operations (Cebeci, 2009). From the 1975's, MRP tool is expanded to MRP-II which is a standard manufacturing resource planning tool (B. Chung, 2007). ERP systems are developed to overcome the shortcomings of the MRP-II in managing orders, production, accounting etc. (Al-Mashari, Al-Mudimigh, & Zairi, 2003; S. H. Chung & Snyder, 2000). ERP is a customizable, standard application software which includes integrated business solutions for the core processes as production planning and control, warehouse management, human resource management,etc. (Rosemann & Wiese, 1999). Gable (1998) defined ERP as comprehensive package of software solution seek to integrate the business functions and systems to monitor the businesses from centralized information and IT architecture. Bingi et al.(1999) defined ERP as a system that constitutes a single database,application and a unified interface across the entire enterprise.the integration of the modules,,,, and s has the potential benefits to companies as quick reaction to competitiveness and market opportunities more flexible product offers to market, reduced inventory and tightened supply chain links (Bingi, Sharma, & Godla, 1999). Obtaining a successful ERP project and obtain the potential benefits, the required precautions are searched by many researchers. Karsak and Özogul (2009) stated that ERP must be selected according to the needs, the business strategies and goals of the company. The needs of the company, characteristics of ERP and their interaction among the needs and characteristics must be analyzed. Cebeci (2009) stated that promising ERP benefits can be obtained by managing the business process change and examining the practicality of the system. The rate of ERP project s implementation failures is high. The issues related to failures are linked to systems characteristics in terms of implementation, system features, vendor attributes and also to the organizational structures. Cheng et al. (2006) claimed the technological complexity and overall restructuring of the organizations are reasons of failure. Hicks and Stecke (1995) stated that, failure lies in the lack of fully understanding of the business needs. The compatibility with goals and strategies must be analyzed before implementation (Hicks & Stecke, 1995). Cheng et al (2006) stated that implementing ERP successfully requires systematic analysis of the key factors. Decision makers' dilemma whether to implement ERP, if so, then how to put ERP into practice requires analytical analysis of key success factors in order to select the most suitable ERP software (Cebeci, 2009; Chiu & Lin, 2004). Suitability must be determined with a team consisting of the company, software developer, and vendor (or consultant) by using a multi criteria decision method (MCDM). The multi criteria nature of decision and the nature of the multi alternatives requires the well-defined comparison of the alternatives (Ayağ & Özdemir, 2007).An unsuitable selection's result will be not only the failure of the project which means loss of time and money but also loss of performance of the company in terms of competitiveness (Calogero, 2000). The ERP vendors are classified according to the features that they offer to the customers as Tier-1, Tier- 2 and Tier-3 vendors. Tier-1 vendors as SAP; ORACLE or MS Dynamics are designed to serve the needs of large scale companies with many departments and global divisions. The revenues are in billions scale. The features they offer enable the staff of the companies to split the big scale tasks among multiple users. These systems enable the managers to access data timely and make decisions based on them by connecting and managing data flow within and the across the complex organizations (Davenport, 1998). Tier-2 ERP systems have a lower complexity compared to the Tier-1. Epicor, Sage, Infor are some the vendors. Tier-2 target customers are mid-size companies. Their revenues are less than billion and hay have multi divisions. The needs of the companies are not complex but the demands can be specific for the industries. 211

3 Z. Konakli Tier-3 offers the lowest cost level in terms of TCO, implementation, customization and consultancy. Baan, Netsuite and ABAS are some examples of this segment. These systems do not offer the features and the functionality of the Tier-1 and 2 systems but it offers the basic business tools as accounting. A growing company can move from Tier-3 to 2 easily, since the Tier-3 vendors offer the data migration features. As another alternative, companies implement systems just designed for themselves. The scale of them are less than billion but they have multiple divisions, hundreds of employees. These kind of systems are called as locally developed (or self developed)-erp systems, but they offer many of the features that ERP vendors offer with a more reasonable cost, higher implementation speed and more flexible solutions. Research Hypothesis Research question is how the specific dimensions of vendor, system and organization influence the organizations ERP decision, so the related hypothesis is '' the ERP decisions are related to the vendor, system and organizational factors''. The model is presented in Figure 1. H1: Vendor factors as,, and significantly influences decision on which type of ERP is selected. H2: System factors as,, and significantly influences decision on which type of ERP is selected. H3: Organizational factors as organizational structure and company profile significantly influences decision on which type of ERP is selected. ERP selection criteria In order to reach the expected benefits through the listed modules, in this study it is proposed that there are 3 main clusters of criteria, these are vendor related criteria, system related criteria and organization related criteria. Vendor Factors -Service Quality -Technical Capacity -Reputation of the Vendor System Factors H 1 -Cost -Features -Productivity and Ergonomy -Customization and Flexibility'' H 2 ERP Selection Organizational Factors -Organizational Structure (culture, IT, Management practices, SCM) -Company Profile (industry type, staff size, revenue, site number and multinational structure H 3 Figure 1: The Model of the Research 212

4 International Journal of Management Sciences Vendor related criteria are about the company and it is related to implementing and giving service during and after the implementation. The attributes related to service quality, technical capacity and reputation of the vendor are accepted as the main criteria to evaluate. Service quality of the vendor is analyzed with the dimensions speed of the service, training services, consultation services and warranty services. The technical capacity of the vendor is related to research and development, technical support and implementation capacity. Reputation of vendor is related to scale, market position and financial position of the vendor. The second dimension of criteria is related to system related criteria. ERP systems are expected to satisfy the information needs of the companies, establish a network among the supply and demand, establish integrity among the sales, marketing, etc., enable customer service and productivity, lower costs and inventory. The criteria related to system are selected as cost, features and business applications, productivity, ergonomy and ease of use and customization and flexibility. The third dimension is proposed as organization related criteria. Organization is analyzed as organizational structure and company profile. Organizational structure is related to culture, IT behavior, management practices, and supply chain practices. Company profile is related to industry type, staff size, revenue, site number and multination division. 3. Research Methodology The measurement items and the selected criteria from the previous empirical studies are used to construct the survey. The developed survey was containing four parts. The first part is collecting data about the demographic properties of the company, type of ERP using, implementation status and the modules implements. The second part is designed to collect data about the effect of vendor in ERP selection, the third part is related to system criteria and the fourth part is related to the company structure. Vendor Attributes System attributes Organizational structure Table 1: Criteria to Select the ERP Systems Criteria Sub-criteria Service Service speed, Training, Consultancy, Warranty Technical Research and Development(RD), Technical support, capacity Reputation market position, scale in the market, financial condition Maintenance cost, Customization cost, Cost cost, Consultant expenses, Cost of infrastructure, License costs Accounting and Financial management, Human resource Features management, Sales management, Warehouse management, Purchase Management, Manufacturing management, CRM and SRM Productivity, Agronomy and Ergonomy, Productivity, Ease of use Ease of Use Customization Modularity, Business intelligence, Customization and Flexibility,Database flexibility, Culture Organizational culture, IT culture, Management practices, Company Profile Supply chain management practices (SCM), Staff size, Revenue, Site number, Multination structure 213

5 Z. Konakli The selected criteria are converted into a survey and the ERP implemented companies are asked their opinion about the degree of effect of the criteria on the ERP selection, implementation and the success. The surveyed companies are asked to rate criteria with a 5-point Likert scale ranging from 1 to 5 representing to respectively. The surveyed companies are located in 5 cities of 2 cantons. The surveyors are supply chain managers, operations managers, accounting managers, information systems manager or general managers who have experience in the field and in the organizations. The experience is necessary for the managers to evaluate the organizational culture, IT management, performance of the implemented software, the challenges of the implementation period and the process of selection of the ERP system. One of the obstacles to reach the relevant information is, in an organization due to the share of these tasks among the top management, not all the data can be gathered from a single respondent. In addition, respondents are asked about their position in the company, the ERP system that they are using, annual revenue, staff size, and company primary industry. To make the information more reliable, in depth interviews with IT manager and general managers or CIO's from the manufacturing companies and experienced ERP consultants from ORACLE, SAP and local developer are made face to face interviews with structured and semi-structured questions. 4. Results Company profiles are asked with five questions related to the type of ERP system implemented, annual revenue, staff size of the company, company primary industry, and the job title of the respondents. The type of the implemented ERP system question has the alternative answer options as SAP, ORACLE and MS Dynamics (Tier-1), Epicor, SAGE, Infor (Tier-2), Baan, Netsuite, ABAS (Tier-3) and others. In Bosnia, Tier-1 systems are used mainly by government institutions and divisions of the multination companies. Through the survey it is also observed that, some local companies aiming a high position in the local and international market have also implemented Tier-1 systems. Revenue of the companies are based on the previous fiscal years data. For the multinational companies, the revenue of the whole organization is taken since the implementation is done throughout the company. The classification of the companies according to the revenue is based on three scales, these are less than 1 million KM, from 1million to 10 million KM and more than 10 million KM. The staff size of the companies grouped as less than 100, from 100 to 250, 250 up to500 and 500 and more. The demographic properties of the surveyed companies are listed in Table 2. Based on the collected results, ERP systems implemented have the highest ratio of option others (%42.9) indicates that companies are using either non-erp systems or the customized ERP systems or the ERP systems which are not listed in the options. The Tier-1, Tier-2 and Tier-3 users have ranks as, %4.6, %19,6 and %32,7 respectively which indicates that companies mainly using Tier-3 systems due to different reasons as cost, implementation suitability etc. The employee size of the companies are concentrated between 100 to 500 region (%76.62), and the company primary industry answers are concentrated for manufacturing and wholesale/retail sector (%69.15). Based on the results, the surveyed people s positions are mainly business manager, director or divisional manager (%53.27). General Managers are hard to be reached (%0.9). IT managers, technology director or information technology managers (%15.88) are aware of the technical issues but for the organization related issues they may have difficulties to answer the survey questions, therefore their percentage is also low with compared to BM/D/DM option. Type of ERP Annual Revenue Table 2: Demographic Properties of the Surveyed Companies Frequency Percentage Tier-1 5 4,6 Tier ,6 Tier ,7 others 46 42,9 1M 53 49,5 1M to 10M 35 32,7 214

6 Staff size Company Primary Industry International Journal of Management Sciences 10M 19 17, ,6 100 to , to , ,73 Public 3 2,8 Healthcare 1 0,9 Manufacturing 39 36,44 Higher Education 3 2,8 Wholesale/Retail 35 32,71 Other 26 24,29 Job title of respondent CEO/GM 1 0,9 CIO/TD/ITM 17 15,88 BM/D/DM 57 53,27 other 32 29,90 CEO: Chief executive officer, GM: General manager, CIO: Chief information officer, TD: technology director, ITM: Information technology manager, BM: Business Manager, D: Director, DM: Divisional manager. From the criteria of vendor, system and organization, the significant dimensions are decided with one sample t-test. The significant criteria are used to generate the second model, which try to find the significant correlations among the sub-criteria. The Table 5.3 presents the significant dimensions of vendor, system and organization. Table 3: The Significant Criteria and Sub-Criteria Classification According to the Survey Results Not significant p.05 (p.05) Vendor System System Service Quality (S) Technical Capacity (TC) Reputation (R) Cost (C) Features and Business applications (F) Speed, Training, Consultancy, Warranties RD capacity, Technical support capacity, capacity Market position, Scale of vendor, Financial Condition Maintenance cost, Customization cost, cost, Consultant expenses, Infrastructure cost, License cost Accounting and financial management Human resource management, Sales management, Warehouse management, - - Success stories, Organizational structure, Provision of references, Long term financial viability Cost of guaranty, Platform cost, Network cost, Security systems cost, SaaS cost, Cost of data import Document management system, Analytic accounting, Payroll management, Project management, 215

7 Z. Konakli Organization Productivity, Ergonomy and Ease of use (P) Customization and flexibility (CF) Portability Reliability Organization Structure (OS) Company profile (CP) Purchase management, Manufacturing management, Customer and supplier relationship management Ergonomy, Productivity, Ease of use Modularity, Business Intelligence, Customization, Database Flexibility, Culture, IT behavior, Management, SCM practices, Staff size, Revenue, Site number, Multinational division Security, Function fitness, Ease of learning, Suitability, Interoperability, Installability, Testability, Change ability, Analyzability, Attractiveness time, Upgrade ability, Ease of integration, Ease of house development Adaptability, Co-existence, Portability compliance, Stability, Recovery ability, Maturity - - Another assumption that all criteria and sub-criteria of the vendor, system and organization are correlated to each other is verified with correlation analysis. The correlations among the variables are calculated in SPSS. These correlations are used in F-ANP method for pair-wise comparisons. The correlated variables are selected with a significance level of p<.05. The variables which have significant correlations among each other are given in the Table 4. Table 4: Correlation Table of the Variables Criteria Subcriteria Correlated sub-criteria Speed (S1) Market position, Scale Service Training (S2) Market position, Scale Consultancy (S3) Market position, Scale Warranties (S4) Market position, Scale, Scale, Financial RD capacity (TC1) Technical condition Capacity Technical Support (TC2) Capacity (TC3) p<

8 International Journal of Management Sciences Reputation Cost Features Productivity, Ergonomy and Ease of Use Customization and Flexibility Market position (R1) Scale (R2) Financial condition (R3) Maintenance (C1) Customization (C2) (C3) Consultant expenses (C4) Infrastructure cost (C5) License Cost (C6) Accounting (F1) HRM (F2) Sales management (F3) Warehouse management (F4) Purchase management (F5) Manufacturing management (F6) CRM and SRM (F7) Ergonomy (P1) Productivity (P2) Ease of Use (P3) Modularity (CF1) Business Intelligence (CF2) Customization (CF3) Database flexibility (CF4) RD capacity, Speed, Training, Consultancy, Warranties, Maintenance,, Consultant experience, License cost Speed, Training, Consultancy, Warranties, RD capacity RD capacity Market position Ease of use Ease of use, Market position, Organizational culture, IT and OC, Management practices, SCM practices, Ergonomy, Productivity, Ease of use, RD capacity, Tech. support, capacity Ease of use,market position, Site number Site number Site number, Market position Revenue Revenue Revenue Revenue cost cost cost Table 4: (Continued) Correlation Table of the Variables Criteria Sub criteria Correlated sub-criteria Organizational culture (OS1) Organizational Structure IT and OC (OS2) Management practices (OS3) SCM (OS4) Company Profile (CP1) Staff size (CP2) Revenue (CP3) Site number (CP4), HRM, Warehouse management, Manufacturing management, Modularity,Business intelligence, Customization, Database flexibility, Accounting, Sales management, Purchase management, Consultant expenses, p<

9 Z. Konakli Multination structure (CP5) Infrastructure cost, License cost 5. Conclusion In the research, the effect of vendor, system and organizational structure on the ERP decisions is analyzed and it is found that in the vendor related criteria 10 sub-criteria is found as significant effect on ERP decisions (p.05) and 4 sub-criteria is found as not significant. From the system related 20 criteria are found as significant on ERP decisions (p.05) and 30 sub-criteria is found as not significant. From the organizational structure criteria 9 sub-criteria is found as significant effect on ERP and there was no insignificant sub-criteria. The correlation table presents useful data to analyze on which other criteria does each one depends on. The inner dependency can help to develop implementation strategies to prevent failures and to increase efficiency of the system. As an exploratory study, there are some limitations of the sampling of the companies to represent all sectors and all regions, also the surveyed mangers are from different positions may have their own privileges related to their position in the company. There is one manager from the CEO/GM level, 17 from CIO/TD/ITM level, and 57 from the BM/D/DM level. This non-uniform distribution may cause a bias in the preferences. Moreover the dissertation opens gates to the researchers to analyze the further dimensions of organization which can affect the ERP decision and also, the inner dependence of the criteria are extracted that can be searched the reasons of the interaction. Future studies could consider to widen the location, add more company profiles, increase the number of alternative systems, also expand the local geographic location to a broaden multinational geographic area to obtain more reliable data. The effect of the local management practices and organizational structures, national culture, can be analyzed in detail to obtain the unexplored dimensions and their effect on IT practices, SCM practices etc. References Al-Mashari, M., Al-Mudimigh, A., & Zairi, M. (2003). Enterprise resource planning: A taxonomy of critical factors. European Journal of Operational Research, 146(2), Ayağ, Z., & Özdemir, R. G. (2007). An intelligent approach to ERP software selection through fuzzy ANP. International Journal of Production Research, 45(10), Bingi, P., Sharma, M. K., & Godla, J. K. (1999). Critical issues affecting an ERP implementation. Information Systems Management, 16(3), Calogero, B. (2000). Who is to blame for ERP failure? Sun Server Magazine. Retrieved from Cebeci, U. (2009). Fuzzy AHP-based decision support system for selecting ERP systems in textile industry by using balanced scorecard. Expert Systems with Applications, 36(5), Chiu, M., & Lin, G. (2004). Collaborative supply chain planning using the artificial neural network approach. Journal of Manufacturing Technology Management, 15(8), Chung, B. (2007). An analysis of success and failure factors for ERP systems in engineering and construction firms. ProQuest. Chung, S. H., & Snyder, C. A. (2000). ERP adoption: a technological evolution approach. International Journal of Agile Management Systems, 2(1), Davenport, T. H. (1998). Putting the enterprise into the enterprise system. Harvard Business Review, 76(4). 218

10 International Journal of Management Sciences Hicks, D. A., & Stecke, K. E. (1995). The ERP maze: Enterprise Resource Planning and other production and inventory control software. IIE Solutions, 27(8), Rosemann, M., & Wiese, J. (1999). Measuring the performance of ERP software a balanced scorecard approach. In 10th Australasian Conference on Information Systems, Wellington, New Zealand (pp. 1 3). 219