ICT & Services MSc BS
Research on Business and Organizational Change Factors Affecting ERP systems (ERP and ERPII) Implementation: Analysis on SMEs and Large Companies
Table of Contents
Abstract……………………………………………………………………… page 3
Chapter 1: Introduction…………………………………………………… page 3-10
Relevant Points
Problem statement
Research questions
Goal
Theoretical and practical contribution
Examples
Chapter 2: Theory review……………………………………………….. page 10-22
Business factors
Organizational change factors
Chapter 3: Methods……………………………………………………… page 22-23
Chapter 4: Findings……………………………………………………… page 24-25
Chapter 5: Conclusions………………………………………………… page 26-27
Reference………………………………………………………………….. page 27-30
Abstract
The research paper investigates the factors influencing ERP systems adoption and discusses to what extent the differences between SMEs and larger firms affect such factors, contributing to the increasing literature on ERP adoption in small businesses. Thus, by means of theory review, there will be set of indicators to be identified as variables that may influence the ERP adoption process that has tested on field through certain empirical study carried on such example from certain companies.
Chapter One: Introduction
The paper will discuss points on such capability of the ERP relating to the company resources in such evaluation of the ERP contribution in fitting into such changes into software processes related to the ERP in such business and organization change factors respectively.
Relevant Points
The capability of ERP systems to manage company's resources efficiently and effectively by providing a total, integrated solution for its information processing needs (Cited from, Fui Hoon Nah et al., 2001) persuaded practitioners and managers of the importance of integrated systems, not only for large multinational organizations, but also for small and medium-sized firms (Cited from, Van Everdingen et al., 2000). The evaluation of the contribution of ERP systems in terms of value creation and economic returns is difficult task, because of the extent of the organizational changes (Cited from, Lozinsky, 1999; Shtub, 1999; Willcocks and Lacity, 1998) to which their implementation leads, as well as the difficulties in predicting the return on investment (Cited from, Mabert et al., 2001). The competences required to manage properly the organizational change determined by ERP system implementation is still debated issue. There stressed out the importance of change and project management competences as critical success factors for ERP implementation (Cited from, Davenport, 2000; Mandal and Gunasekaran, 2003; Motwani et al., 2002) indirectly raising the issue of small to medium-sized enterprises's lack of organizational preparation.
Besides, SMEs suffer from widespread lack of culture, as to the concept of business process: it is not by chance that the reinforcement of the concept of business process is often claimed among the critical success factors in ERP implementation (Cited from, Beretta, 2002). In particular, the business process concept helps promoting co-operation and convergence of efforts among managers versus the internal competition induced by the functionally-oriented organizational models which is typical of SMEs (Cited from, Al-Mashari et al., 2003). Since the adoption of an ERP system requires extensive efforts, both for the technological and business aspects of implementation to evaluate the related impacts (Cited from, Al-Mashari, 2002) as it is critical for companies to figure out whether a specific ERP system fits their business practices. When the features of the software application do not correctly fit the business requirements two possible strategies can be identified:
Conversely, Chan (Cited from, 1999) asserts that SMEs either do not have sufficient resources or are not willing to commit a huge fraction of their resources due to the long implementation times and high fees associated with ERP implementation. The resource scarcity, the lack of strategic planning of information systems (Cited from, Cragg and Zinatelli, 1995; Levy and Powell, 2000; Zinatelli et al., 1996), the limited expertise in IT (Cited from, Levy and Powell, 2000) and opportunity to adopt a process-oriented view of the business are among the factors that strongly influence, ERP adoption by SMEs. Furthermore, even if ERP implementation differences between large and small organizations are recognized in literature (Cited from, Bernroider and Koch, 2001), their focus is on the decision-making process.
Problem statement
ERP systems greatly reduce the margin for error created by information being input by different employees into many different databases. ERP standardises manufacturing processes and such Human Resource information, as well as integrating financial data, so that sales and accounts have the same figures. The chance of being able to arrive at the same levels of integration as with an ERP system is very low, but this may be worth accepting as a means of saving the cost and pain associated with ERP implementation. Today, the adoption of ERP is no longer restricted to larger enterprises and increasing numbers of small and medium sized enterprises have started to adopt ERP systems (Cited from, Loh and Koh, 2004). Companies in less well developed economies have begun to use ERP systems to solve some of their manufacturing management problems. Very little research is available and appears from those studies which are available that there are some differences in the way that ERP systems are adopted and implemented when compared with companies (Cited from, Woodie, 2005).
Research questions
Henceforth, issues need to be further explored: To what extent SMEs informational needs are different with respect to large companies? Are SME peculiarities real obstacles to ERP adoption? Is it possible to identify relationship between organizational change and ERP adoption in companies of different size?
Goal
Amicably, the main goal of this paper is to fully understand ERP implementation as supported by such business and organizational change factors and be able to realize and put into application ideal ERP system and respected process in achieving good business and its success.
Theoretical and practical contribution
There should be resolution to such theoretical gap such as pointing to the business and organizational factors as it can be that the capability of ERP systems to manage such company's resources efficiently and effectively by providing integrated solution for its information processing needs (Cited from, Fui Hoon Nah et al., 2001) that persuaded managers of importance of integrated systems, not only for large organizations but, also for small and medium-sized firms (Cited from, Van Everdingen et al., 2000).
The evaluation of practical contribution of ERP systems in terms of value creation and economic returns is difficult idealism because of extent of the organizational changes as to which implementation lead in predicting such theory relevance as the competences required to manage properly the organizational change determined by an ERP system implementation is debated issue. The qualified basis for the theoretical contribution stressed out the importance of change and project management competences as critical success factors for ERP implementation thereby raising practical issues of SME's lack of organization preparation. Besides, SMEs generally suffer from a widespread lack of culture, as to the concept of business process: it is not by chance that the reinforcement of the concept of business process is often claimed among the critical success factors in ERP implementation (Cited from, Beretta, 2002). Since the adoption of an ERP system requires extensive efforts in technological and business aspects of implementation, IT researchers have developed deterministic method to evaluate the related impacts.
Although ERP vendors are concentrating on the customization process needed to match the ERP system modules with the actual features of existing processes in a number of different industries, several studies show that configuring and implementing ERP systems is complex and expensive task (Cited from, Van Everdingen et al., 2000; Mabert et al., 2000). Although the effective use of business information is a strategic goal for companies of any size, nowadays most of the ERP systems available on the market are too expensive for the financial capabilities of smaller companies (Cited from, Chau, 1995; Gartner Group and Dataquest, 1998, 1999). To investigate differences further, the theory presented explores to what extent business complexity as measured from business factors and the awareness of the organizational requirements as measured by organizational change affecting ERP adoption.
Examples
Considering ERP integration between enterprises the differences in the types of ERP system adopted by suppliers and customers in the supply chain could create incompatibility issues. In order to overcome these problems, the concept of extended enterprise, ERP II was developed. ERPII could be operationalised by using an extended enterprise application or enterprise application integration to integrate different ERP systems in a supply chain (Cited from, Loh et al., 2006).
Mabert et al. (Cited from, 2003) found that enterprises of different sizes approach ERP implementation differently across a range of issues, and larger enterprises report improvements in financial measures, whereas smaller enterprises report better performance in manufacturing and logistics. As Gattiker and Goodhue (Cited from, 2002) explored the impact of ERP software-driven process changes on manufacturing enterprises. The trustworthiness of vendor is important to determine success/failure of ERP system customisation. Then, Gefen (Cited from, 2002) examined how ERP vendors and consulting enterprises could increase their clients' perception of engagement success through increased client trust brought about through responsive and dependable customisation during the implementation process.
Chapter Two: Theory review
Basically, ERP survives will provide avenues in order to improve communication, accountability and responsibilities in the business organizations (Cited from, Koch 2002). Moreover, successful implementation of ERP system reduces cycle time, increase production, improve customer support and increase overall efficiency and that apart from ongoing benefits to the companies there are certain factors that must be kept in consideration in order to have successful implementation of such new systems and or the upgrading of various essential existing system. It is said that the biggest problems are found in the business problems as some companies would fail to reconcile the technological imperatives of the enterprise resource system within the business needs of the enterprise itself and before the process of the implementation of this ERP system, company managers need to sit down and think over every core business processes as well as the information areas in the company. During the process of implementation, the ERP system is analyzed on the basis of supported business processes, data and reports it provides and is then compared with the original business case to understand the current utilization of the ERP system and to find out the features and functions along with underlying issues involved which are not currently of value and usage and by means of working on these issues, companies improve their business processes.
Furthermore, companies need to properly analyze the business processes and identify the performance management indicators that would help in evaluating the current company's strategy with the industry standards with proper planning and systematic approach companies can therefore enhance the benefits received from the ERP implementation in lieu to technology services. Implementing ERP service in terms of integrating business processes was the foremost priority of the many companies concerned of applying such service in order to get more worth from the service process then, certain companies need to move from 'Time to market' that leads to the continuous business improvement where the companies constantly need to assess and improve their existing business practices and the need to review their ERP implementation of different scenarios and will have to upgrade their ERP systems to meet changing business demands. The companies have to upgrade their systems to incorporate additional functionalities in their services and will have to ensure that they have a failsafe upgrade plan in order to minimize the disruption to users and business which requires consolidation and rigorous analysis of current and future services adapted by the business as well as the changes required (Cited from, Demann, 2003).
Furthermore, for ERP adoption reasons within SMEs were explained only by contingency or exogenous factors (Cited from, Tagliavini et al., 2002). To investigate these differences further, the research model presented in this paper explores to what extent the business complexity and the awareness of the organizational requirements affect the extent of ERP adoption. The sections will detail main components of conceptual framework: the business factors and organizational change.
Business factors
Although the organizational structure of larger firms could be different from SMEs, it is reasonable to assume that companies of any size, characterized by high organizational complexity show a critical need for coordination and control of business activities which is related to the complexity of the information system (Cited from, Grinyer et al., 1986; Lorange, 1980). The research neither proposes any measure nor tests their reliability; instead their occurrence in ERP adoption.
Organizational change factors
Another issue that deserves consideration is the organizational impact of ERP systems as they tend to impose their own logic on company strategy, organization and culture (Cited from, Davenport, 1998). Thus, the ERP adoption decision affects most of the company business functions and directly involves a significant number of people. The project team responsible for ERP implementation will be challenged in matching functionality of application to business practice or find ways to adapt or change current processes and procedures, while the project team could face organizational resistance to changing the status quo (Cited from, Laughlin, 1999). ERP systems allow companies to streamline their management structures, creating flatter, more flexible, and more democratic organizations. The extent of organizational change represents degree of company transformation that the entrepreneur plans as consequence of technological innovation. In order to analyze the factors influencing the adoption of ERP systems, there can be assume that ERP systems could generate larger benefits if implemented when high level of organizational change is planned as Venkatraman (Cited from, 1994) classify levels of transformation (See, figure one).
Company size
In any case, literature emphasizes size as one of the issues increasing the need for co-ordination and control of organizational activities (Cited from, Howard and Hine, 1997; Yasai-Ardekani and Haug, 1997). Apart from organizational or strategic remark, other research works (Cited from, IDC, 1999) simply suggest direct relationship between the size of organizations and percentage of organizations where ERP has been implemented.
The market area
In addition, as companies become more global and develop international supply chains, the limitations of ERPII have become apparent. Literature has identified the attempts being made by many organizations to expand their IS infrastructure beyond their organizational boundaries through the development of inter-organizational business systems. The variable seems to be strongly related to the co-ordination of dispersed business units, in terms of alignment of processes and procedures both between the holding and the controlled companies and among controlled companies, if the imposition of operating processes on units leading to coordination between the controlled companies in terms of flexibility (Cited from, Davenport, 1998).
The membership an industrial group
This seems to be strongly related to the co-ordination of dispersed business units, in terms of alignment of processes and procedures both between the holding and the controlled companies and among controlled companies themselves. However, if the imposition of common operating processes on all units could lead to a tight coordination between the controlled companies, in a multiregional context strict process uniformity could be counterproductive in terms of flexibility (Cited from, Davenport, 1998).
The presence of branch offices
The management of information flows is crucial issue for companies with branch offices which need to be remotely controlled as SMEs face different issues like, cultural and technological levels of the entrepreneur as one of the aspects that must be considered to comprehend fully the fall-outs in terms of management complexity, organizational impact and required competencies.
The level of diversification
Operating in different product-market combinations introduces another level of complexity (Cited from, Yasai-Ardekani and Haug, 1997). In related-diversified firms, an increase in the number of businesses adds information-processing demands by increasing business-unit interdependencies (Cited from, Hill and Hoskisson, 1987; Kerr, 1985; Michel and Hambrick, 1992; Pitts and Hopkins, 1982). In unrelated-diversifiers, as the number of businesses increases, the information-processing requirements associated with maintaining efficient internal capital markets also increase (Cited from, Jones and Hill, 1988). Moreover, because of the greater need for co-ordination and control of activities, organizations will tend to have specialized planning departments, employ larger number of planners and consequently devote a substantially larger amount of financial resources to strategic planning (Cited from, Grinyer et al., 1986; Kukalis, 1989).
The degree of functional extension
Many companies prefer to outsource those activities that are not directly related to the business strategies, as degree of functional extension refers to the number of strategic functions directly managed within the company, which should be related to the amount of information to be managed (Cited from, Price, 1997).
Hypothesis
Ideally, it’s necessary to verify the association between such ERP implementation factors involving business and organizational factors respectively within the use of ERP systems is essential through such testing of the following research hypotheses as reflected in the theoretical framework.
H1. The company size affect positively in adoption of ERP system
H2. The market area affects positively the adoption of ERP systems
H3. The membership of group affects negatively the adoption of ERP systems
H4. The presence of branch offices affects negatively the adoption of ERP systems
H5. The level of diversification affects adoption of ERP system positively
H6. The degree of functional extension affects the adoption of ERP system negatively
Therefore another hypothesis to be tested focused on matching between organizational issues and ERP system adoption
H7. The extent of planned organizational change is related to use of ERP systems as the greater is planned organizational change, the greater is rate of adoption of ERP system
Figure One: Levels of business transformation
Local automation of existing procedures. This strategy is pursued only for automation of local, independent procedures. It requires minimal efforts and the corresponding expected results are enhancements in business process performance. Internal integration of existing business processes. It aims at integrating the business processes and the company IS in order to create competitive advantage. The required integration has to be pursued both at the technological and organizational level: people belonging to different business functions have to cooperate to reach common objectives.
Business process reengineering. It involves the redesign of business processes, affecting not only the company procedures, but its organizational structure. Business network redesign. Changes overcome the boundaries of the company and could affect the entire network of its external relationships. For instance, electronic data interchange (EDI) can represent the technology chosen to pursue the strategy, but great effort has to be put into business process integration, through continuous information exchange and competence sharing. Redefinition of company boundaries through the creation of inter-organizational relationships. The information communication technologies allow the redefinition of the competitive environment through the creation of strong inter-organizational relationships.
The extent of planned organizational change is directly related to the use of ERP systems. To develop an effective framework it is necessary to include into the research model both the endogenous and exogenous reasons that may affect ERP adoption, it is possible to distinguish operational reasons like, improving responsiveness to customers and simplifying ineffective or complex business processes and technological reasons in compliance requirements, integration of business processes and systems, replacement of obsolete systems.
Figure Two: Theoretical Framework
The variables such as the company size, market area and membership of a group comprised from the research based view and others such as presence of branch offices, level of diversification, degree of functional extension and organization change extent lies from the theory based view. For detailed discussion on the variables refer to the theory review as discussed above.
Chapter Three: Methods
Based on the literature review, focused on the identification of taxonomy of business and organisational factors, questionnaire was designed. It comprised three parts: the company demographics, the assessment of each business factor and the extent of the organizational change. Before the complete deployment of the survey a first trial was carried out on 122 companies suggesting the validity of the proposed approach (Cited from, Tagliavini et al., 2002). Responses were collected through personal interviews made by dedicated team to top manager since the proposed questions required the knowledge of the main business objectives, as well as of the features of the different business activities. A preliminary validation of collected data has been performed by cross-tabulating ERP adoption with each of the seven factors corresponding to the seven hypotheses (from H1-H7). Then, the connection existing between each factor and ERP adoption has been assessed through Pearson's R.
According to the theoretical framework, the following sets of variables will be measured:
The business complexity factors can be evaluated through six indicators respondents are to asked to qualitatively assess each variable of the set. Then, diversification has to be measured as synthetic index of business strategy by offering only two possible responses: diversification and other strategies. The classical representation of value chain (Cited from, Porter and Millar, 1985) are integrated with measure used to assess the impact of BPR on manufacturing firms (Cited from, Guimaraes and Bond, 1996). The extent of organizational change which aims at evaluating the level of organizational change the company is prepared to face in order to achieve competitive advantage through the use of IT has been assessed through question suggesting Venkatraman’s levels of organizational change. The methodology itself differentiates this research from previous efforts, being based on an extensive questionnaire deployed through direct interviews, instead of the commonly used approach based on case study. Despite the positive outcomes of such choices, one main side effect could be a reduced comparability of the results.
Chapter Four: Findings
Data from the sample will then be collected into such valid questionnaires. There can be choices of direct interviews as information on such ERP systems are to be made accountable for evaluating the two mentioned factors. The industry will focus on SMEs and such large companies pertaining to the study. The empirical verification of the framework shows the difficulties in describing the relationship between the growth in business and organizational complexity and ERP adoption: only two measures were considered reliable.
The data analysis supports the existence of strong correlation between company size and ERP adoption. No other studies seem to have tested the relationship between business complexity and ERP adoption on such a relative high number of companies, and on SMEs in particular. The findings on relationship between ERP adoption and organizational change will show that companies making use of the ERP system expects better business transformation with respect to companies making use of other software applications. SMEs always scheduled limited organizational change in ERP adoption, thus they seem not to consider ERP systems as a keystone for organizational innovation.
Indeed, there is sign for ERP big players that the SME market requires simplified and less expensive solutions. This has been the way ERP vendors tried to cope with the issues connected to the dualism between business processes change and software customization issues. In particular, the first answer of ERP vendors was the proposal of products with a range of functionalities on a smaller scale to lower the overall costs and vertical solutions to achieve concrete reduction in customization costs without a dramatic change in the way people currently work.
Chapter Five: Conclusions
Summary of Findings
In particular, experiences on the field seem to confirm that both the extent of business complexity and the sustainable level of organizational change may dramatically vary according to company size, hence SMEs could be no longer treated by the same standard as large companies. On the other hand, the need for integrating ERP systems with the existing legacy systems could not only be met by offering vertical and lighter ERP solutions. Thus, SMEs to acquire and assemble cost ERP systems, by gradually integrating components that are reasonably customized to their specific needs (Cited from, Kumar and Hillegersberg, 2000).
Answer to research questions
The research then attempted to study the relationship between business complexity, organizational change and ERP adoption. The analysis of the empirical data will then, clearly shows that business complexity, as a composed factor, is a weak predictor of ERP implementation, whereas just company size results to be a very good one. In other words, companies seem to be disregarding ERP systems as an answer to their business complexity. The outcome could depend on such perception of SMEs of certain business complexity and the reason discount more on the ERP systems.
Limitations and Recommendations
There can be no large differences in terms of complexity were found among these two groups. Unexpectedly, SMEs disregard financial constraints as the main cause for ERP system non-adoption, suggesting structural and organizational reasons as major ones. The pattern can be diverse from what is observed in large organizations wherein the reason for not adopting ERP system is organizational centered and imply that SMEs structural peculiarity will serve such real obstacle to ERP diffusion and that such adequate strategy can be lacking from within the vendors. Moreover, decision process regarding the adoption of ERP systems within SMEs is more affected by opportunities rather than on business-related factors contrary to large companies that are more interested in managing process integration and data redundancy/inconsistency through ERP implementation. The paper will need to investigate as to whether business complexity could influence and somehow explain the different extent to which companies of any size adopt ERP systems. The focus can be relevant in lieu to certain comparative analysis of business characteristics of the companies themselves, intentionally leaving out of consideration closer investigation of ERP packages.
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