ERP Systems Adoption Evolution in Iberian ...

Reference: Estébanez, R., Trigo, A., & Belfo, F. (2016). ERP systems adoption evolution in Iberian companies during the global financial crisis and recession (2007-2014). IEEE Conference Publications. 2nd International Conference on Information Management (ICIM), 116 - 120. doi: 10.1109/INFOMAN.2016.7477544

ERP Systems Adoption Evolution in Iberian Companies during the Global Financial and Economic Crisis and Recession (2007-2014)

Raquel Pérez Estébanez

António Trigo and Fernando Belfo

School of Computer Science, Universidad Complutense de Madrid, Spain e-mail: [email protected]

Polytechnic Institute of Coimbra, ISCAC, Quinta Agrí cola, Bencanta, 3040-316 Coimbra, Portugal Centro ALGORITMI, University of Minho, Portugal e-mail: [email protected], [email protected]

manufacturing resource planning (MRPII) [6-8]. MRP was developed to calculate more efficiently the materials needed. It evolved into MRPII which encompassed new functionality like sales planning, capacity management and scheduling. Though MRPII was initially seen as the next logical step in efficient manufacturing planning, companies quickly realized that profitability and customer satisfaction are objectives that apply to the entire enterprise extending beyond manufacturing, and encompassing finance, sales and distribution, and human resources [9]. In the late twentieth century, before the new globalized trade organization, companies need systems that support business management holistically to promote operational efficiency and serve to support critical aspects of management. So the software industry developed applications with integrated business systems, which are currently known as ERP systems. An ERP system breaks barriers between functional departments and reduces duplication of effort and so, helps business processes to be more flexible and responsive. Actually, most ERP systems are only used in internal processes, integrating Finance & Accounting, Human Resources, Order Management (Sales) and Manufacturing. These systems typically have not had significant collaboration with outsourcing suppliers and customers [10]. In the beginning of the twenty first century, innovative requirements for extended enterprises were incorporated into the ERPs systems. New modules and functionalities like customer relationship management (CRM), supply chain management (SCM), product lifecycle management (PLM) or employee lifecycle management (ELM) became part of ERPs, eliminating redundant information, increasing integration between the system and external actors and enhancing collaboration in all the supply chain. Some, baptized this new ERP systems as the ERP II [11]. ERP II concept was based not only on the business coordination, but also on the industry orientation, expanding roles and functions of the system required by an industry sector or a particular industry [12]. More recently, the importance of knowledge as an important asset arose. Consequently, the integration of the knowledge management (KM) function into ERP systems were encouraged and the term ERP III emerged [12]. The main advantages of ERP are online access to data and the ability to share them and disseminate knowledge throughout the organization [13] and the ability to increase

Abstract—In an increasingly globalized and complex environment, companies are making an effort to implement systems based on Information and Communication Technologies (ICT) to improve their management and organizational performance and competitiveness. Enterprise Resource Planning (ERP) systems are increasingly present in companies. In Spain and Portugal, large, medium and small companies have developed further efforts to implement ERP systems despite the difficult economic and financial situation of recent years. This study presents companies’ effort in implementing and using ERP systems during the global financial and economic crisis and recession (2007-2014) comparing company’s size and sector of activity in Iberian companies, Spanish and Portuguese. Keywords-Information and Communication Technologies; Enterprise Resource Planning (ERP) adoption; Iberian companies; The financial and economic crisis of 2008

I.

INTRODUCTION

In recent years companies are making an effort to implement systems based on Information and Communication Technologies (ICT) to improve their management and organizational performance [1-4] and thereby strengthening their competitiveness in an increasingly complex environment. All these advanced information technologies are helping business-trading partners to integrate their operations and strategies to lower the total system costs and to achieve a high customer service level. And, in this sense, ERP systems are increasingly present in companies as an information system for business management due to its ability to automate and integrate business processes [5]. ERP systems began to develop in the United States during World War II in order to support the management of material resources demanded by the army. In later decades, manufacturing companies used them to manage and streamline their inventory and plan the use of resources according to the actual demand for their products, then called MRP (Manufacturing Resource Planning). Later they incorporated these concepts systems as “Just in Time” which included managing the relationship with customers and suppliers. The origin of the name ERP was derived from the terms material requirements planning (MRP) and 978-1-5090-1470-5 4/16/$31.00 ©2016 IEEE 116

by the members of the company [19], as well as the investment and level of training of system users [20]. Other critical issues affecting ERP implementation have been discussed in several articles and cases, such as business processes reengineering, ERP-legacy integration, data management, implementation cost and schedule, ROI concerns, top management commitment, effective and strong project management, and project members’ qualifications. There are even some examples of failed implementations, which show that ERP can cripple or kill a business [15].

consistency between business strategy and operational decisions [14] that could make businesses significantly more competitive [15]. The availability of specific modules for each of the different functional areas of the company, avoids repetitive tasks and improves real-time communication between all business areas. As for the disadvantages of these systems the highlight is on the difficulty in its implementation [16, 17], since they tend to be quite complex systems that have a strong organizational impact and require a large amount of resources [18]. Another factor of success or failure in the implementation of an ERP is the acceptability of this system Figure 1 shows the basic structure of an ERP system.

Figure 1. ERP system structure. Source: own elaboration.

In the present study we show differences in the implementation of ERP by company size and sector of activity in Iberian companies. This study highlights the possible differences on the implementation and use of ERP along a period beginning on economic growth situation, continuous on a deep economic and financial crisis and finish with a little economic improvement.

Although the phenomenon began in large enterprises their use has been extended to Small and Medium Enterprises (SMEs) [21]. It is a known fact that the larger the company the more likely to accept an ERP [22]. Most very large organizations world-wide have already adopted ERP systems and increasingly SMEs too are finding it cost effective and a competitive necessity to follow suit [9], being increasingly motivated to implement them. ERP targets multiple industries with very different characteristics so it is difficult to characterize ERP by simply listing functions. ERP supports multiple industries because ERP can have either the ability to support different industries within one solution (e.g., coexistence of manufacturing and retailing functionality) or offer preconfigured enterpriseindividual solutions. For example SAP offers solutions for 25 business industries [23]: Aerospace and Defense; Automotive; Banking; Chemicals; Consumer Products; Defense and Security; Engineering, Construction and Operations; Healthcare; High Tech; Higher Education and Research; Industrial Machinery and Components; Insurance; Life Sciences; Media; Mill Products; Mining; Oil and Gas; Professional Services; Public Sector; Retail; Sports and Entertainment; Telecommunications; Travel and Transportation Utilities; and Wholesale Distribution.

II.

RESEARCH QUESTION

The research question of this study is well defined in the title of this paper: to discover the impact in Iberian companies of the financial crisis, which started in 2008 and whose effects were felt until 2012. In practice translates to assess the number of companies that claim to have adopted ERPs during the 2007-2014 periods. The chosen period covers the years from 2007 until 2012, the time leading up to the economic recession and the recession time itself, but it also covers 2013 and 2014, the first economic recuperation years. It is a study of quantitative nature being the data obtained through the National Statistical offices of Portugal and Spain via the European survey “Survey on ICT (Information and Communication Technologies) and e-commerce use in companies”, designated in Portuguese by “Inquérito à

117

Utilização de Tecnologias da Informação e da Comunicação nas Empresas (IUTICE)” [24] and in Spanish by “Encuesta sobre el use of ICT y en las electronic commerce companies” [25]. The data had to be obtained from the National Statistical offices since at the Eurostat level [26] the data was not available for all the datasets we needed for the study. Since the data is of official nature, which methodological documents can be found in the above references for each one, it is representative of the study population, i.e., the Iberian companies from 2007-2014. The period chosen allows to assess ERP implementations before (2007-2008), during (2009-2012) and after the financial crisis (2013-2014). Notwithstanding, these time intervals are not absolutely fixed due to the fact that ERP implementations are processes that have an average term of more than one year, the truth is that a financial crisis accelerates the process of decision-making of an ERP implementation, for what it seems that the intervals chosen of about two years allow us to infer adequate results. III.

understanding the evolution of the adoption of ERP systems in Portugal during the period 2007 to 2014. Firstly the study shows stratified results by company size from INE database (see Figure 1). The results obtained allow us to see that there is a growing trend in the proportion of companies using ERP on this period. As for the stratification by size, clearly we can see that there is a distance between large firms and smaller ones. Still, in all strata is a growing trend, with stagnation in economic crisis years and a progress since 2011. However, doing a deeper analysis of this situation, as we can see on Figure 2, we observe that Spanish medium sized companies, from 50 to 249 workers have done the greater effort on implementing ERP, a 33,32% increase, and show a proactive attitude towards ERP. However the greater increase in Portugal, a 19,9%, has been made by large companies. Small sized companies have also done an effort on using and implementing ERP in this period, with an increase of 24% in Spain and 12% in Portugal. Finally, Spanish large companies have increased 19,8% their ERP systems usage, a similar growth to the Portuguese companies of identical size.

DATA ANALYSIS AND FINDINGS

We analyzed the period 2007-2014 to find out what has been the trend in companies in the implementation and development of ERP in Spain and Portugal, which raises an issue start with an overview of economic growth, continuous in an economic recession and finish on a changing tendency to recuperation.

Figure 3. Percentage of increase of enterprises using ERP in 2007-2014. Source: Own elaboration with Portuguese and Spanish National Statistical Institute data.

If we analyze the phenomenon in terms of the sector, three sectors of activity, Industry, Construction (especially delicate in Spain during this period, because it was a critical sector in Spanish economic crisis when it crash on 2007) and Services will be considered. Figure 3 shows the comparison between Spain and Portugal of the manufacture sector level of ERP implementation in the years under study. The number of industrial companies that have implemented ERP systems has increased in this period but lower than other sectors As we can see, there is a growing tendency in both countries but from 2008 to 2012 it decreases and maintains in Spanish business and in Portuguese business it was a decrease tendency till 2009 and then it goes the other way round. Finally in the last years it begins to increase the level of ERP implement. This increment can be because businesses, either in manufacturing or servicing, know they have to implement ERP systems because of competition and customer requirements or they will lose market share [27].

Figure 2. Percentage of Iberian enterprises using ERP in 2007-2014 by business size. Source: own elaboration with Portuguese and Spanish National Statistical Institute data.

The data or this study was obtained from the Survey on the Use of Information and Communication Technologies and e-commerce in enterprises, by the National Statistical Institute from Spain and Portugal. The Portuguese National Statistical Institute had no available data for the year 2011 which is why there is a break in this year in the figures for Portugal. Nonetheless, this fact does not prevent

118

IV.

CONCLUSIONS

The ERP systems are increasingly being implemented in Iberian enterprises in the period 2007-2014, in line with increase of the use of other information technologies. In the period of crisis whose worst year was 2009, the percentage of companies with ERP has increased, with its lower point in 2008 in Portugal and 2007 in Spain. Since 2008, there has been stagnation or a modest growth until 2012 in both large and midsize companies. On 2012, the tendency changed again and companies strongly increased their ERP implementation level. In the period 2007-2014, the growth of ERP implementation level of small and medium sized businesses has been higher than larger ones in Spain, but the situation is opposite in Portugal, so this needs a deeper analysis of the reasons. It is also possible to observe that, although the total Portuguese and Spanish companies have started 2007 with a substantial difference of ERP implementation level between each other, with the Portuguese companies having a level of implementation with more than 14% than the Spanish ones, these difference tended to almost vanish in 2014, with a difference lower than 2% among them. This fact, showing a tendency to a growth and also to an equilibrium in terms of ERP implementation among the Iberian companies, apparently may be one consequence of globalization, where firms try to play in a transnational scenario, characterized by global and standard rules and by joint ventures or alliances which usually expedite technological innovation. Considering its worst economic and financial situation in 2009-2011 Iberian companies have opted for these systems in an obvious way as an engine of strategic improvement of their economic and business development. The implementation of ERP systems seems to be almost indispensable for large companies, where the great majority of them decided to adopt these information systems (around three quarters of Spanish companies and more than 90% of Portuguese companies in 2014). By sector, the result of ERP systems usage is similar in industry and services, where the first sector increased and then stagnated between 2009 and 2011, when the crisis was becoming more evident and funding problems start to sprout, and finally back to growth in 2012. However, the sector hardest hit by the crisis, the construction sector has had a remarkable growth from 2009, bigger than the other sectors in both countries. It seems clear therefore, that when companies face greater difficulties and have more hostile environments, they tend to make greater use of ICT and in this particular case of ERP, to improve their internal and external processes, since it was the small and medium sized businesses that showed a better increasing, and it was the construction sector which had higher development on ERP.

Figure 4. Comparative of Iberian enterprises using ERP by manufacture sector. Source: Source: Own elaboration with Portuguese and Spanish National Statistical Institute data.

Regarding the construction sector, which has been the most beaten by the crisis in Spain, companies have clearly opted to incorporate planning ERP systems in their organization. The size of the company, in this case, has not been a differentiating factor. As shown in Figure 4 Spanish usage of ERP systems have grown, firstly softly but higher since 2012. However, Portuguese business behavior is much more irregular, beginning with an increasing tendency, then it getting stuck in 2010 and, finally, returning to a strong increase after 2013.

Figure 5. Comparative of Iberian enterprises using ERP in the construction industry. Source: Source: Own elaboration with Portuguese and Spanish National Statistical Institute data.

And finally, if we consider the services sector evolution, it is similar to industrial enterprises (see Figure 6). From 2007 to 2008, the proportion of companies that implemented ERP considerably increased, and thereafter, it slowed in Spanish enterprises from 2009 to 2012 and then increasing up to 2014. Portuguese firms begin falling down in 2008, but from then it increased continuously till the end of the period studied.

REFERENCES [1] Figure 6. Comparative of Iberian enterprises using ERP in the services sector. Source: Source: Own elaboration with Portuguese and Spanish National Statistical Institute data.

[2]

119

Al-Mudimigh A, Zairi M, Al-Mashari M. ERP software implementation: an integrative framework. Eur J Inf Syst. 2001;10(4):216-26. Nicolaou AI, Bhattacharya S. Organizational performance effects of ERP systems usage: The impact of post-implementation changes.

[3]

[4]

[5] [6] [7]

[8]

[9] [10]

[11]

[12] [13]

[14]

International Journal of Accounting Information Systems. 2006;7(1):18-35. Gonzálvez-Gallego N, Molina-Castillo F-J, Soto-Acosta P, Varajao J, Trigo A. Using integrated information systems in supply chain management. Enterprise Information Systems. 2014;9(2):210-32. Trigo A, Varajão J, Barroso J, Soto-Acosta P, Molina-Castillo FJ, Gonzalvez-Gallego N. Enterprise Information Systems Adoption in Iberian Large Companies: Motivations and Trends. In: Tavana M, editor. Managing Adaptability, Intervention, and People in Enterprise Information Systems2011. Gallardo AL, Pérez BE. Factores de éxito para la implantación de sistemas ERP. Evidencia empírica. Partida doble. 2006(183):80-95. Chung S, Synder C, editors. ERP Initiation - A Historical Perspective. AMCIS 1999 Proceedings Paper 79; 1999. C. H, B. L, P. K, editors. Beyond Enterprise Resource Planning Projects: Innovative Strategies For Competitive Advantage. 7th European Conference On Information Systems; 1999 23 -25 June; Copehagen. Yusuf YY, Little D. An empirical investigation of enterprise‐wide integration of MRPII. International Journal of Operations & Production Management. 1998;18(1):66-86. Klaus H, Rosemann M, Gable GG. What is ERP? Information Systems Frontiers. 2000;2(2):141-62. Chuang ML, Shaw WH. An empirical study of enterprise resource management systems implementation. Business Process Management Journal. 2008;14(5):675-93. Moller C. ERP II: a conceptual framework for next-generation enterprise systems? Journal of Enterprise Information Management. 2005;18(4):483-97. Da Xu L. Enterprise systems: state-of-the-art and future trends. Industrial Informatics, IEEE Transactions on. 2011;7(4):630-40. Pérez BE, Gallardo AL. Implicaciones teóricas y metodológicas de la evolución de la investigación en Contabilidad de Gestión. Revista Española de Financiación y Contabilidad. 2002;XXXI(111):245-86. Gupta M, Kohli A. Enterprise resource planning systems and its implications for operations function. Technovation. 2006;26(5– 6):687-96.

[15] Chuang M-L, Shaw WH. A Roadmap for E-Business Implementation. Engineering Management Journal. 2005;17(2):3-13. [16] Quattrone P, Hopper T. What is IT?: SAP, accounting, and visibility in a multinational organisation. Information and Organization. 2006;16(3):212-50. [17] Yusuf Y, Gunasekaran A, Wu C. Implementation of enterprise resource planning in China. Technovation. 2006;26(12):1324-36. [18] Ward J, Hemingway C, Daniel E. A framework for addressing the organisational issues of enterprise systems implementation. The Journal of Strategic Information Systems. 2005;14(2):97-119. [19] Wall F, Seifert F, editors. Does the Structure of an Organization Influence the Success of its ERP-System? Results of an Empirical Study. VI European Accounting on Information Systems (ECAIS); 2003; Sevilla. [20] Romeo J. Cover story: less pain, more gain in ERP rollouts. Netw Comput. 2002;12(19):49-56. [21] Martí nez FJ, Framiñán JM, Luna P, García M. Los Sistemas ERP en las Empresas Españolas. Partida Doble. 2001;128:52-61. [22] Robey D, Ross JW, Boudreau M-C. Learning to Implement Enterprise Systems: An Exploratory Study of the Dialectics of Change. J Manage Inf Syst. 2002;19(1):17-46. [23] SAP. Solutions by Industry: SAP; 2015 [cited 2015 April 6, 2015]. Available from: http://go.sap.com/solution.html#solutionsbyindustry. [24] INE.pt. Inquérito à Utilização de Tecnologias da Informação e da Comunicação nas Empresas (IUTICE). In: Estatística INd, editor. Lisbon: INE.pt; 2015. [25] INE.es. Encuesta sobre el uso de TIC y comercio electrónico en las empresas In: Estadística INd, editor. Madrid: INE; 2015. [26] Eurostat. Adoption of ICT by businesses. In: Eurostat, editor. 2015. [27] Baki Ba, Dereli T, Baykasogˇlu A. An investigation on the readiness of Turkish companies for enterprise resource management. Journal of Manufacturing Technology Management. 2004;15(1):50-6.

120